Houston's Real Estate Dilemma

Houston's real estate dilemma: Home prices hit a record high, but there just aren't enough houses to sell

By Ralph Bivins¹ 5.15.14

Home prices have never been higher in the Bayou City, and the lack of inventory is putting a lid on home sales. CMPInstitute.org

Houston home prices hit a record high in April as an exceptionally low inventory of homes for sale prompted many buyers to engage in bidding wars and make higher offers.

Houston’ average price of a single-family home in April increased 7 percent to $270,505, up from $252,725 a year ago, says the Houston Association of Realtors. The median price — the midpoint where half the homes sold for more and half for less — rose 5.4 percent from a year ago to $195,000.

The Houston Association of Realtors says home prices have never been higher in the Bayou City.

Single-family home sales were up slightly in April, with 6,438 single-family homes sold, up 0.3 percent from the sales total in April of last year, the association reports.

 Sales could be much stronger considering the fundamentals: Houston’s strong job growth and a continuation of low mortgage interest rates. 

“It’s still extremely hot,” says Shad Bogany of Better Homes and Gardens Gary Greene. “Anything that his the market is selling very quickly right now. I am getting multiple offers.”

A home that remains listed for sale for 90 days or more is probably a house in poor condition or one that is extremely overpriced, Bogany says.

The supply of homes for sale has remained at 2.6 months of inventory since December — lower than it’s been in more than 30 years. A year ago, the Houston had a 3.4-month supply in April 2013. On a national basis, supply of inventory is 5.2 months of inventory.

Sales could be much stronger considering the fundamentals: Houston’s strong job growth and a continuation of low mortgage interest rates.

The lack of inventory is putting a lid on home sales, says HAR chair Chaille Ralph with Heritage Texas Properties. “We also believe consumers may be waiting for more homes to hit the market in the price range they can afford before taking action.

"Many continue to rent in the interim, as reflected in our April report showing a further increase in single-family and townhome/condominium rentals.”

Some homeowners have been deciding against putting their homes up for sale because they refinanced their homes when rates were around 3 percent. Letting go of those favorable mortgage rates can be hard to do.

Experts say an increase in home building may be the only way to solve the low inventory problem. Local builders have faced a shortage of labor and lots to build on. The homebuilding market was nearly dismantled during the recession and tradesmen moved into other lines of work and land developers did not start many new communities, from around 2008 to 2011. Getting the industry ramped up again cannot happen overnight.

However, Houston area home builders are getting into high gear in 2014. Houston area home starts are running 9 percent ahead of last year’s pace, according to Metrostudy.

“Builders started construction on 7,146 new homes the first quarter, the fastest pace since the third quarter of last year,” says David Jarvis, regional director of Metrostudy’s Houston Market. “Houston hasn’t seen this many new homes started in the first quarter of the year since 2007.”

The low inventory issue is the main thing controlling the housing market right now. Until that situation changes, Realtors will be singing the same tune .

¹Ralph Bivins, founding editor of Realty News Report, is a past president of the National Association of Real Estate Editors.

Houston Beats The State of California in New Construction Homes!

Boom on! Houston notches more new home starts than the entire state of California

CultureMap Houston, By Ralph Bivins

Houston has more new home construction than any other city in the nation and the building boom is going to get even more intense in the next few years, even though home prices are rising, a national housing consultant predicts.

“Construction is growing much faster here than anywhere else and the economy is much stronger than anywhere else,” says housing consultant John Burns, who heads Irvine, Calif.-based John Burns Real Estate Consulting.

Houston had more new-home starts last year than the entire state of California, he says, and it will continue to be the nation’s top spot for building for a long time. “I think it’s going to last for quite some time because Atlanta and Phoenix are the only two that are challenging and they are way behind.”

“Construction is growing much faster here than anywhere else and the economy is much stronger than anywhere else,” says housing consultant John Burns.

Burns was in Houston this week to address developers, home builders and real estate brokers at the Urban Land Institute's Suburban Marketplace conference at the Marriott Westchase.

Houston’s new-home prices are at an all-time high, Burns says. With the economy strong and the supply of new homes very tight, home prices will continue to go up, probably about 5 percent this year, followed by a 4 percent gain next year.

“With only a three months supply of houses on the market, prices have to go up,” Burns says.

Houston builders could be building and selling 50,000 new homes in 2014, but a shortage of labor and quality lots is suppressing the local construction industry somewhat.

Developers are responding to the need for more lots by creating new communities, such as Pomona, which was recently started by Ross Perot Jr.’s Hillwood company in Manvel, south of Houston.

Burns’ survey of the best-selling master planned communities in the nation shows that 10 of the top 25 are in Houston. “This is the capital of suburban master planned communities in the country,” he says.

Burns projects that Houston’s annual new-home starts will increase about 13 percent annually over the next three years, peaking at 50,000 starts in 2016. The city, boosted by the energy and healthcare industries will have rising employment growth, topping out at 100,000 new jobs added in 2016.

Tough for first-time buyer

Today’s conditions are tough on the first-time homebuyer. Thirty-year mortgage rates, now in the mid-4 percent range will be rising over the next few years, topping out at 6.3 percent in 2017, Burns predicts.

Younger buyers and would-be homebuyers are saddled with student debt that has tripled over the last eight years, Burns says. And inflation adjusted incomes for the 25 to 34-age bracket has been falling slightly.

Fewer apartment dwellers are moving out of apartments to buy homes these days. Only 15 percent of apartment residents today say they are leaving because they are buying a house, down from 25 percent when the starter-home market was at its peak a few years ago.

Houston’s housing market appears to be on a strong run that will continue for at least three more years, Burns predicts. His projections indicate prices will continue to rise through 2017, but will soften slightly in 2018.

Long-term projections are tricky and the future is always uncertain. But for now, it’s a great time to be carpenter in Houston.

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