Housing market in decline

[Gary]

Looks like the housing boom is over, well except for us.

http://www.chron.com/disp/story.mpl/business/4140369.html

[Parrothead]

Some of my colleagues and I were just talking about this yesterday. IMHO, that article is a perfect example of "Drive-By Media"-- vague, irresponsible reporting.

What that article failed to mention is that there are several states that are just like Texas, where new and resale markets are booming and doing better than we ever have. Of course, the media has spun it brilliantly by taking the states that had the most growth (FL, CA, AZ, NV) and using them as their yardstick....which is kinda nuts, because the resale market is still booming and people are still paying top dollar in those areas.

Local economy has a lot to do with why we and several other states are doing so well.

[TheNiche]

Some of my colleagues and I were just talking about this yesterday. IMHO, that article is a perfect example of "Drive-By Media"-- vague, irresponsible reporting.

What that article failed to mention is that there are several states that are just like Texas, where new and resale markets are booming and doing better than we ever have. Of course, the media has spun it brilliantly by taking the states that had the most growth (FL, CA, AZ, NV) and using them as their yardstick....which is kinda nuts, because the resale market is still booming and people are still paying top dollar in those areas.

Local economy has a lot to do with why we and several other states are doing so well.

You're correct in that the media likes to spin stuff in such a way that it worries people. Worried people listen to the news, afterall.

Although I think that our expensive housing product is largely shielded from interest rate risk by the nature of the high-end consumers' financial status, the low end of the housing market is most sensitive to rising interest rates. The segment of used and especially new homes priced up to about $150,000 is the most at-risk because many consumers of those homes are first-timers that are financing a lot of debt relative to their income and have a lower propensity to save money.

[Montrose1100]

I feel like we've been in this part of the cycle before...

[TheNiche]

I feel like we've been in this part of the cycle before...

Yeah, when the recession of 2001 hit, we were among the very last metropolitan areas to feel the heat. It was bad in 2002, but bottomed out in 2003 for us, even though the rest of the country had already started to recover. If it hadn't been for Enron, we would've fared quite well.

[sttombiz]

there was no recession in Houston in 2001-2003. I doubt that the enron debacle even made a dent in our unemployment rates. Yet, Houston has been in a recession since 1985 up until about this past year.

the housing market in Houston and the US go up and down with the price of oil. Houston is just the influx of the US. thats why in 1981 3000 sq ft houses cost $375-400k (around $1.3 mil in todays standards) but in 1985 the price had dropped to about $80k. Houston's economy now because of the bio-tech industry does not rely totally on the price of oil, but have you noticed lately there has been a lot of new construction? whereas about 2-5 yrs ago it wasnt even heard of.

makes you think. but at least we're getting a taste of the housing boom these days.

[TheNiche]

there was no recession in Houston in 2001-2003. I doubt that the enron debacle even made a dent in our unemployment rates. Yet, Houston has been in a recession since 1985 up until about this past year.

the housing market in Houston and the US go up and down with the price of oil. Houston is just the influx of the US. thats why in 1981 3000 sq ft houses cost $375-400k (around $1.3 mil in todays standards) but in 1985 the price had dropped to about $80k. Houston's economy now because of the bio-tech industry does not rely totally on the price of oil, but have you noticed lately there has been a lot of new construction? whereas about 2-5 yrs ago it wasnt even heard of.

makes you think. but at least we're getting a taste of the housing boom these days.

False. Go to the Texas Workforce Commission website and pull employment data. So far, 1998 was a bigger boom year for Houston than either 2005 or 2006 have been.

Please adjust your figures for inflation.

Also, even in the worst part of the 80's, there has always been new construction...even if only a small amount at that time. Go to A&M's Real Estate Center website for further data on local and state housing makets.

[Houston1stWordOnTheMoon]

I dont think Enron hurt as much as it could have. Thier folding created a flood of talent in the job market which was for the most part fairly quickly obsorbed by other companies.

[TheNiche]

I dont think Enron hurt as much as it could have. Thier folding created a flood of talent in the job market which was for the most part fairly quickly obsorbed by other companies.

Yeah, the best talent didn't have too much difficulty at all and in quite a few cases came out ahead. But if Enron hadn't collapsed, companies would've had to have hired folks with less talent, and that would've kept the labor market very tight.

[sttombiz]

98 was a bigger boom in what? that unemployment rates were the lowest or that houston economy did the best?

I still base houston economy primarily on the price of oil. there has never been as much construction as there is now. hopefully we can retain this boom instead of squandering it.

[TheNiche]

98 was a bigger boom in what? that unemployment rates were the lowest or that houston economy did the best?

I still base houston economy primarily on the price of oil. there has never been as much construction as there is now. hopefully we can retain this boom instead of squandering it.

If employment growth (higher in 1998) isn't the best representation of a booming regional economy, then what is? High oil prices are a factor, but they are not the boom.

Unemployment is an imperfect factor--the Katrina population shift pushed unemployment up by about a point last year, but that doesn't mean that our economy suddenly took a hit. Likewise, Americans are a very mobile labor force and readily move wherever there seems to be economic opportunity. If people decide to move to a city faster than that city can absorb them into the labor market, that doesn't make the city in question any less of an economic player.

According to Bart Smith's Institute for Regional Forecasting at UH, 93,680 new residential units delivered to market in the Houston PMSA in 1982. In comparison, 53,966 residential units delivered to market in 2005. The following are years since 1975 with more residential supply growth than last year:

1976 through 1983

1998

2003

Also, even with a booming economy and the Katrina effect, which resulted in the absorption of 44,025 apartment units in 2005, we still didn't top the all-time record of annual absorption, set in 1981, when 49,332 units were absorbed. The past several years of apartment absorption are shown below:

1998 | +13,489

1999 | +12,618

2000 | +10,546

2001 | +3,375

2002 | +726

2003 | -3,082

2004 | -2,423

2005 | +44,025

Want to go further? Companies absorbed 6.1 million square feet of office space in 1997 and 5.8 million in 1998. They had negative absorption (canceled or failed to renew leases) of 4.0 million and 3.4 million square feet, respectively, in 2002 and 2003. In the past two years (2004 and 2005), they've leased back 1.2 million and 2.0 million square feet, respectively.

Still not convinced of the 1998 boom? In 1998, the number of employees working in office buildings (i.e. higher-wage positions than average) increased by 6.3%. In 1999, it was 3.16%. Since then, the highest rates of growth have been in 2004 and 2005, at 2.33% and 2.36%, respectively.

In 1998, the average monthly posted price of a barrel of West Texas Intermediate Crude was only $11.95, down from a high of $20.51 in 1996.

Any questions?

[Trae]

What was the big deal going on in 1998. I am guessing it was Enron because they started getting big around that time, right?

[TheNiche]

What was the big deal going on in 1998. I am guessing it was Enron because they started getting big around that time, right?

Several factors were lining up in our favor. The foremost among them was a strong national economy with a diversified growth pattern. Enron was a part of that, but not the entire thing. A lot of corporations from various industries had been looking at Houston since the oil/S&L busts as an inexpensive alternative to pricey northern cities, and had been relocating offices down here throughout the early 90's. When the national economy grew, so did our diversifying local economy.

Around 1997 and 1998, our excess of empty office buildings and industrial facilities had been completely absorbed and our reputation as a risky investment market had faded somewhat, so we got a new construction boom in commercial real estate. Housing came along with that.

On the whole, we ultimately became less linked to the energy sector and more linked to the nation. The advantage is stability. The disadvantage is that we have more limited growth potential. On the whole, we're probably a more healthy investment environment today because of it.