Can the Boom Continue?

[Triton]

Looks like more and more firms are starting to see the data I saw back in January: http://www.houstonarchitecture.com/haif/topic/31147-can-the-boom-continue/?p=522905

 

 

 

A multifamily research firm reports Houston’s apartment market is showing “significant signs of weakening” amid the oil slump and supply of new projects. 

 

MPF Research released a new report that looked at Houston apartment data from RealPage, a property management software. The Carrollton, Texas-based company found that while market surveys of apartment rents continue to show rent growth, leasing data points toward a market slowdown.

 

http://www.bizjournals.com/houston/morning_call/2016/03/houstons-apartment-slowdown-has-certainly-arrived.html

 

As I stated in January, I still forecast a recession to hit Houston sometime around Q3 to Q4 of this year.

[swtsig]

nothing but HATERS bro.

[mollusk]

Any guesses about which current area with lots of somewhat older apartments will end up in a race to the bottom of the rental rates, with the resulting poor maintenance?

[UtterlyUrban]

Any guesses about which current area with lots of somewhat older apartments will end up in a race to the bottom of the rental rates, with the resulting poor maintenance?

Man, the shifts in some Areas of town the last time this happened (back in the early to late 80's) were staggering. Areas when from being "a cool area with lots of young professionals" to being anything but in 5 years or so.

I don't know the city well enough now to venture a guess what those areas might be this time around.

[IronTiger]

Any guesses about which current area with lots of somewhat older apartments will end up in a race to the bottom of the rental rates, with the resulting poor maintenance?

I don't think a "race to the bottom" will happen, at least with what isn't already there. First time around, Houston sprawled out to an amazing degree, and a lot of cheaply built apartments with many units were done because everyone thought it would keep growing, creating whole areas of apartments that just became slums (Hobby Airport, Sharpstown, Gulfton, Greenspoint). The last big boom mostly focused on inner city buildings which converted older houses and apartment complexes to bigger apartment buildings.

[DrLan34]

I don't think a "race to the bottom" will happen, at least with what isn't already there. First time around, Houston sprawled out to an amazing degree, and a lot of cheaply built apartments with many units were done because everyone thought it would keep growing, creating whole areas of apartments that just became slums (Hobby Airport, Sharpstown, Gulfton, Greenspoint). The last big boom mostly focused on inner city buildings which converted older houses and apartment complexes to bigger apartment buildings.

 

"They became vacant overnight," Finger said of his projects in Bellaire, Webster and toward the Ship Channel. "It was a very difficult time generating enough revenue to pay for the debt service. I said 'Never again would I consider building on any tract of land that I didn't think was a Main and Main location.'"

[cspwal]

Yeah, no one can say for sure but I'm betting that the inner loop will have decent occupancy while the suburbs may suffer.

 

Marvy Finger once said in response to a question about the latest downturn that he will never build another complex that is not at "Main and Main".

 

"They became vacant overnight," Finger said of his projects in Bellaire, Webster and toward the Ship Channel. "It was a very difficult time generating enough revenue to pay for the debt service. I said 'Never again would I consider building on any tract of land that I didn't think was a Main and Main location.'"

 

He also said that while the projected income from his projects will fall, location will help keep occupancy high (but that may be at the expense of the outer loop apartments).

 

Breaking: Marvy Finger confirms apartment project in TMC

 

[DrLan34]

Breaking: Marvy Finger confirms apartment project in TMC

 

Main and Main.JPG

 

[plumber2]

There is another Main St and Main St intersection just up the road from that one, (Main St and West Main St.), although South Main Baptist has taken over that part of West Main street as their own recently. Christian Annexation I guess.

 

[H-TownChris2]

But wait, hasn't oil prices jumped in the past couple of weeks?

http://www.oil-price.net/

[UtterlyUrban]

But wait, hasn't oil prices jumped in the past couple of weeks?

http://www.oil-price.net/

Some think it's a Dead Cat bounce.

I think that we may have formed a bottom. The next two months will tell.

[august948]

Any guesses about which current area with lots of somewhat older apartments will end up in a race to the bottom of the rental rates, with the resulting poor maintenance?

 

I'd guess areas on the fringes of town.  Weren't Sharpstown, Greenspoint, and Alief on the fringes in the early 80's when things went south?

 

[cspwal]

I'd bet a lot of the Energy corridor area apartment buildings will go south like that

[IronTiger]

In general, I'd say that the denser the worse off, so the Energy Corridor would definitely be hurt. However, downturns also usually affect the poor the most, so I would imagine that the existing Greenspoint, Gulfton, and Sharpstown will drop their prices again and still be the bottom.

 

Also, for a true "race to the bottom" to occur, wouldn't a mass exodus of people (like Michiganders leaving town) be required?

[Triton]

Moody downgrades Houston credit rating... seeing a negative outlook. 

 

Quote

“The negative outlook reflects the recent weakness in economic and sales tax performance, fueled by energy companies’ reduced investments in personnel and capital, as oil prices have remained low,”

http://www.bloomberg.com/news/articles/2016-03-16/houston-s-3-billion-of-debt-cut-by-moody-s-after-oil-price-drop

https://m.moodys.com/research-preview/Moodys-downgrades-Houstons-TX-GOLT-to-Aa3-maintains-negative-outlook--PR_903168652?

[UtterlyUrban]

I have been bearish for 18 months.   Anything but a Houston bull.

but, I just feel that we have put a bottom in.  The key concept is now the shape of oil's recovery.  That shape will impact, for better or worse, houston's prospects.

i hope that a bottom has formed!

[Triton]

15 hours ago, UtterlyUrban said:

I have been bearish for 18 months.   Anything but a Houston bull.

but, I just feel that we have put a bottom in.  The key concept is now the shape of oil's recovery.  That shape will impact, for better or worse, houston's prospects.

i hope that a bottom has formed!

 I think we all hope the bottom for oil has been reached. However, you have to realize, it's coming in a wave. It's not a "oil down $10 today, homes sales down 10% tomorrow" type of thing... it will take time for us to reach the bottom of the real estate market fall.

[samagon]

Happy birthday Triton!

I think the bottom has been reached, how long before it goes back up, now that's the question.

[UtterlyUrban]

3 hours ago, Triton said:

 I think we all hope the bottom for oil has been reached. However, you have to realize, it's coming in a wave. It's not a "oil down $10 today, homes sales down 10% tomorrow" type of thing... it will take time for us to reach the bottom of the real estate market fall.

I fully agree and have said this very thing a number of times in this thread.  It takes time for effects to ripple through the economy -- significant lags.  Even if we have put in a bottom, it will take time for that to even be seen -- more lags.  In the meantime, Houston will continue to feel negative impacts, IMO.

[IronTiger]

I think oil is back up to $40/barrel now, but I think that there doesn't need to be a recession. Basically, I think it's going to be a "normal" economy.

Layoffs will continue in O&G but will slow down BUT don't expect them to be hiring a lot of people.

Prices will go down for housing in general BUT don't expect a "race to the bottom" for prices.

Development in the suburbs will continue BUT don't expect a lot of big projects in the Inner Loop.

[Triton]

Actually seeing some good data today. I said back in January that I would release some stats about the economy and about the recession that was forecast for later this year. Still seeing weakening across the Houston market but we may barely miss the actual definition of a recession by just a hair. I'll post the stats later today once I'm off work.

[Triton]

Let's start off with the five big sectors.... office, industrial, retail, multifamily, and hotel.

Starting with the worst, office is by far the worst hit and will remain relatively weak for quite some time. Expect almost all proposed office projects to be cancelled or indefinitely postponed, however you want to look at it. Vacancy rates will likely reach 15.2%. 

Industrial is slowing rapidly across the state, however, the Houston submarket is actually seeing the strongest activity even in this downturn, as petrochemical and third party logistics dominate tenant activity.

Next multi-family.... If there wasn't before, there is clear evidence of oversupply in the Class A property type across the Houston market. After two years of record construction, we will see a rapid tapering of Class A construction. On the plus side, however, Class B is rising quickly and will be the next part of the multi-family market to keep an eye on. With the Houston population continuing to grow, Class B properties are strengthening with an occupancy rate rising to 93.6%. 

Retail... the hot spot. With limited supply, constrained construction cycle, and strong population growth, we are seeing a continued driving force behind retail and expect it to perform well for quite some time. Houston absorbed 2.5 million sq ft in 2015, the most in ten years. 

Last but not least... hotel... the hottest spot. Hotel occupancy is at 70.5% and room rates are at record highs of $108.10. Although hotel is doing well, we will likely see this start to dwindle in 2016. 

The energy sector is no longer the top contributor to Houston... It's the Port of Houston at $178.5 billion, Energy Sector at $103 billion, Airport System at $27.5 billion, Texas Medical Center at $14 billion and Aerospace at $1.8 billion... those numbers are the economic impact we see on the Houston economy. 

The quite troubling area we are seeing is building permits being issued... there is a significate slide in single family with a modest drop in multi-family.

 

Edit: I'll release more later.

[UtterlyUrban]

Triton:

i am curious on one stat above.  The numbers from the Port of Houston and the Energy sector:. Have those been normalized?  By this I mean, a LOT of goods that flow through the Port are actually energy (oil, gas, chemical, drill pipe, etc).  Are you counting the "value" of these goods twice?  (Once for the port and once for the "energy sector"?)

just curious.

 

 

[Houston19514]

16 hours ago, Triton said:

Let's start off with the five big sectors.... office, industrial, retail, multifamily, and hotel.

Starting with the worst, office is by far the worst hit and will remain relatively weak for quite some time. Expect almost all proposed office projects to be cancelled or indefinitely postponed, however you want to look at it. Vacancy rates will likely reach 15.2%. 

All things considered, that is remarkably good news.  Some metro areas think anything below 20% vacancy is a tight market (and you don't have to look far to find such a metro area).

[Triton]

6 hours ago, UtterlyUrban said:

Triton:

i am curious on one stat above.  The numbers from the Port of Houston and the Energy sector:. Have those been normalized?  By this I mean, a LOT of goods that flow through the Port are actually energy (oil, gas, chemical, drill pipe, etc).  Are you counting the "value" of these goods twice?  (Once for the port and once for the "energy sector"?)

just curious.

 

 

I don't work in the Houston research department but from what they've told me, these are all "direct" numbers... obviously the airport traffic will be affected by oil execs/personnel/investors travelling and the same goes for the port as well. However, those figures are actually not as recent as I thought but the rest of the data above it is. Still have more info to post such as the banking sector but I'll do that later. It's actually better than I originally thought, especially compared to the 80s.

[The Pragmatist]

Here's an interesting article to read speaking on Houston's increased diversification from O&G reliance.

http://www.seattletimes.com/business/once-wedded-to-oil-houston-economy-carries-on-despite-bust/

[swtsig]

Houston has been incredibly resilient this downturn, no doubt. which isn't to say that there hasn't been a lot of pain with more to come. but as a whole we are still seeing a relatively vibrant economy even if growth has been greatly tempered. restaurants and bars are still routinely busy, at least those in the urban core. and to have the final four and superbowl to help provide if even a modest boost is a big plus.

[Triton]

On 4/4/2016 at 5:17 PM, swtsig said:

Houston has been incredibly resilient this downturn, no doubt. which isn't to say that there hasn't been a lot of pain with more to come. but as a whole we are still seeing a relatively vibrant economy even if growth has been greatly tempered. restaurants and bars are still routinely busy, at least those in the urban core. and to have the final four and superbowl to help provide if even a modest boost is a big plus.

Completely agree.

 

Going on the info I posted above (I know, I said I would talk about the finance sector...), looks like the news outlets are seeing the data I've been seeing...

From me:

Quote

The quite troubling area we are seeing is building permits being issued... there is a significate slide in single family with a modest drop in multi-family.

From Biz Journals:

Quote

The city issued building permits for new home projects valued at $112.2 million in January, down 35 percent from $191 million in January 2015. Although Houston’s new home construction market is cooling, the city is seeing an uptick in home additions and remodeling. The city issued $28.4 million worth of permits for remodeling work in January, a 46 percent increase from the $19.5 million worth of permits issued in January 2015.

http://www.bizjournals.com/houston/news/2016/04/05/residential-construction-activity-slows-down-in.html?ana=RSS%26s=article_search

[IronTiger]

Wasn't the other downturn also tied with a massive savings and loans scandal that contributed to a lot of the banks going down?

[Triton]

1 hour ago, IronTiger said:

Wasn't the other downturn also tied with a massive savings and loans scandal that contributed to a lot of the banks going down?

Correct, but although there is an ever-growing amount of debt due to oil that's being serviced by the banks and there are certainly companies that are going bankrupt during this downturn, the financial sector looks actually a lot better than I thought it would be, again based on the data. Probably won't be able to release numbers anytime soon so let me just say.... basically the banks are in a lot better position to handle this debt than in the 80s. A lot of them have a lot more money on hand, especially after the regulations/lessons of the 2008 financial crisis.