If you’re looking to make a long-term bet on the housing market, than the place to start is with one of America’s largest cities: Houston.
Houston currently ranks as the country’s fourth-largest city behind New York, Los Angeles and Chicago, with a population of just over 2 million. However, just being a major city doesn’t count for much these days. New York and Los Angeles are growing very slowly, and Chicago is losing population.
The Houston metro-area population in 2010 numbered just under 6 million, but the most important statistic in this regard is that during the past decade Houston has added more people than any other of the nation’s 366 metro areas, reported Rice University’s Kinder Institute for Urban Research.
According to the Rice University report, Houston grew by 1.2 million people from 2000 to 2010, nudging out Dallas-Fort Worth as the fast-growing U.S. metro. Don’t expect that growth to slow down in the near future.
"Houston will double in population between now and 2035," said Ted C. Jones, senior vice president and chief economist with Stewart Title Guaranty Co. in Houston. "Houston will see the same net in-, net out-migration that the city experienced between 2000 and 2007."
Why are people coming to Houston? The short answer is jobs.
Between June 2010 and June 2011, the United States as a whole added just over 1 million jobs; Texas accounted for 29.2 percent of those jobs, yet the state has only 8.1 percent of all jobs in the country, Jones said.
Over the 12-month period from August 2010 to August 2011, Houston added 54,300 net new jobs, Jones said.
Houston has recouped all the jobs lost during the recession, said Carlos Bujosa, vice president of general brokerage services for Transwestern in Houston and chairman of the board of the Houston Association of Realtors.
"We are starting to see out-of-state license plates again," said Bujosa. "Houston is not really a tourist destination, so people coming from out of town are moving here. When word got out that Houston’s employment is better than elsewhere, people began moving here looking for jobs."
As I often mention, I live in the Phoenix-Mesa-Scottsdale metroplex, which added 941,011 new folks from 2000 to 2010 (No. 5 ranking) and from reports in the local papers, the population continues to grow. This hasn’t prevented the area from being one of the great housing disasters of the current recession. This didn’t happen in Houston, which has weathered the recession very nicely.
"One of the good things about the Houston market is that we avoided the housing bubble," Bujosa said. "We never had a big run-up in prices as happened in other parts of the country. Our home prices were increasing, but never at an unreasonable rate, mostly in the single digits annually."
It wasn’t that the Houston real estate community was smarter than its brethren elsewhere in the country; the moderation was the result of experience with bubbles. Houston and the rest of Texas went through a calamitous period in the early 1980s when the oil and gas industry fractured. Local banks and thrifts collapsed and the housing market tanked.
Lesson learned. The city did not overbuild during the housing boom years, which was fortunate because average home sales peaked in 2007 at more than 6,500 per month (for the prior 12 months) and has since fallen to just over 4,500 per month, as reported by HAR and Stewart.
Despite the population increase, the metro is still not overbuilding.
"This year we will build about 16,000 new homes in the Houston area, that’s down from 20,000 homes last year," said Bujosa. "At peak, we were adding about 50,000 homes; 25,000 to 30,000 homes are good numbers for Houston."
The average home price dipped below $200,000 during the heart of the current recession, but in July 2011 the average price of a single-family home hit $224,110, up from $222,534 in July 2010, reported Margie Dorrance of Keller Williams Realty Metropolitan and former chairperson of the HAR.
Dorrance, who works the high-end neighborhoods in the core of Houston, said the biggest problem she has is that the professionals moving into Houston can’t sell their homes in their old neighborhoods somewhere else around the country. For the first time, she is now doing leases.
"When they move here, they really would love to buy a house, but until they sell a property in another part of the country they really need to lease," she said. "Leasing in Houston was always at a small level, but it has dramatically increased this past year."
Then when clients can buy, it’s not as easy as expected.
Dorrance gives this example: A client and his family moved from California a year ago to one of the nicer neighborhoods near Houston’s famed medical complexes, but they couldn’t sell the old house so they leased.
Eventually, the old house did sell and the client sought to buy in the same neighborhood. The client was outbid on three homes before getting a fourth home in the $800,000 range.
Jones, the economist, breaks out the problem this way: You need 1.25 to 1.5 new jobs for every new dwelling unit; we have almost 2.5 new jobs for a new dwelling unit.
Or you can look at the Houston paradox this way: In July, a home for sale in Houston sat on the market an average of 7.6 months, down 2 percent from the year before.
About her experience with the client who was outbid on three homes, Dorrance said, "We couldn’t believe we were having so much difficulty getting a house within their price range."