The Houston New Home Market: Riding the Tailwinds Despite the Headwinds

Adobe Stock / duydophotography

“Houston we have a problem.” As a native Houstonian, I back down whenever I hear that famous phrase spoken or referenced by reporters, journalists, or writers. It’s even now the refrain of a popular country music song. This hackneyed saying is effortlessly out of the tongue and has been applied to everything and everything about Houston: its weather (fair enough), its professional sports teams (again, fair enough), its economy, its local industry. But the area’s housing market, particularly the new housing market, is one area where Houston certainly doesn’t have a problem.

At the end of the difficult year of 2020, the Houston area remained the second largest new housing market in the country behind our neighbor to the north, Dallas-Fort Worth. The Houston area recorded 36,739 new housing starts in 2020, which represents a 20.3% increase in annual starts from 2019. It is also the highest number of housing starts. annual new home seen in Houston since 2008, shortly after the annual peak of 50,000 starts in 2007.

Courtesy of Zonda

New home sales (as opposed to housing starts) in Houston are also up year over year, albeit less aggressively than in other major markets. Zonda’s January 2021 Pending New Home Sales Index reflects Houston’s sales increase of 21.4% from January 2020. This places Houston in the middle of year-over-year sales growth. another among the top 20 new housing markets.

Houston also saw 34,484 new home closings in 2020. Even with high annual new home starts, current market new home inventory levels are at the bottom of the cycle. A related “problem” facing Houston builders is that vacant serviced lot inventory is also at a cyclical low with 14.1 months of supply. The balance in the Houston market is typically 20-24 months of inventory. Tight lot inventory conditions are expected to worsen before improving, continuing in Houston through the remainder of 2021 and into 2022. My colleague David Brown recently asked whether Dallas-Fort Worth has the short-term lot supply to remain the country’s highest volume new housing market. Equally tight current and near Houston lot inventory would not allow it to exceed DFW’s new home starts volume.

Two key factors have contributed to the strength of the new housing market in Houston during the last half of 2020 and so far in 2021.

1. Help with resales: Like many large new home markets across the country, the resale market is contributing to the strength seen in Houston. Annual sales of single-family homes for resale in the Houston area in 2020 were up 9% from 2019. However, at the end of December 2020, the standing stock of used single-family home listings was down by 40% from December 2019. The number of resale listings in inventory has continued to decline since then. Resale listings in inventory were down 43% year-over-year at the end of January 2021. This lack of inventory has pushed a disproportionate share of home buyers into the space. new houses. This pivot occurred as the perfect alchemy of demographics and historically low interest rates were synthesized to drive demand to almost unpredictable heights.

2. Strength despite energy, not because of it: Houston is known as a key center of the country’s oil and gas industry. This is true on the west side “upstream” of the city, including the Class A office tower filled with the energy corridor filled with white-collar workers, scientists and engineers, to the east side “downstream” of Houston with the Port of Houston and one of the largest concentrations of petrochemical refineries in the country employing highly skilled and well-paid blue-collar workers. The energy industry suffered during the COVID-19 pandemic as demand based on travel fell overnight, causing the price of oil to drop. As oil prices show signs of stabilizing, the industry has had a bumpy 2020. Upstream energy saw the loss of 14,000 jobs in 2020 (nearly one in six in the Houston area according to the Greater Houston Partnership) while more than 10,000 manufacturing jobs focused on tools and tubing for oil fields were abandoned. As a result, Houston’s unemployment rate of 8.1% still exceeds the national rate of 6.3%. However, in the face of difficult times in one of Houston’s key industrial sectors, the housing market has always exceeded expectations. The current strength of the new housing market is based on stronger fundamentals than short-term population and employment growth due to high oil prices. Instead, this strong demand was driven by record high interest rates, promoting affordability, coupled with demographic-related life stage changes.

Leave a Reply

Your email address will not be published.