I was about to call it a night, but I stumbled across this story from KHOU:
You don’t have to drive far around town to see new homes under construction: Houston is in the middle of a housing boom.
Though thousands of new homes are being built right now, but one type is selling better than others.
Builders have never been so busy.
Houston set a record in 2006, building more new houses than any city in the country — more than 71,000.
And it’s forecast to keep those bragging rights this year.
OK, so they are building a ton of homes- how many are they selling?
Sales of those priced between $80,000 and $150,000 are down 16 percent in the last year.
Ones from $150,000 to a quarter million are down 12 percent.
Experts figure the subprime mortgage mess and abundance of apartments have contributed to that slow down, but there is a surge in some home sales: luxurious ones. Houston’s healthy economy is creating thousands of new jobs, attracting people from the East and West Coasts.
“You’d be surprised how many homes are paid with cash,” Shad Bogany with ERA Bognay Properties said. “Because they made a killing on the east or west coast and they come to Houston and they’re able to buy two or three times more house for less money than what they had back home.”
Homes selling from $900,000 to $999,000 are up 15 percent, and sales of homes priced at a million or more increased 25 percent.
There’s no word in the report as to how sales are in the rather large $150K+ to $899K part of the market.
It seems unlikely that the sale of million dollar homes are going to carry the market. According to the Texas Residential MLS, in the resale market, less than 5% of homes sales are in 2007 were in the $500K+ range. It seems unlikely that the million dollar+ segment is more than a couple of percentage points, if that.
If Houston is building more homes than anywhere else, but sales are down- that is hardly a "housing boom." It does however, mean that conditions are ripe for a "housing bust" in the not too distant future.
Your not in bubble land anymore. If you understand the information in this good article from fortune magazine and the tables from the link in the 13 paragraph you will probably conclude that historical fundamentals are not out of wack everwhere. Whith interest rates comming down again, perhaps you should reconsider purchasing.
here is the link http://money.cnn.com/2007/11/06/real_estate/home_prices.fortune/index.htm
Hlowe-
What is happening in Houston is that the fundamentals are changing- I’ve watched this happen across the nation.
Homebuilders build homes for a living. They will change their product and their pricing, they will shift the markets that they are focusing on- but they will keep on building.
You don’t need a bubble in house prices to have builders mess up the local fundamentals. All you need is for builders to come in and build more than demand dictates- then the surplus hurts the comps, people can’t sell for what they paid, and the cycle starts. That’s one of the reasons that foreclosures are rising in Texas.
I have family in the Houston area. When I visit I see the builder specials there, just like I do everywherre else. I see the foreclosures [my mom has a couple on her street- she couldn't possibly sell for what she paid two years ago.]
I’m renting a great place in Austin. The landlord would prefer to sell it to me, but I can’t see more than doubling my payment and having to pay for maintenance on this place. I took a good look at the Austin market before moving here, and it was clear that even in one of the nation’s better markets, renting makes more sense for me.
I’ll just stay here on the sidelines for awhile.
As someone who spends a great deal of time both in the Houston area and in Arizona I have to disagree with the idea of a housing bust on the horizon in Houston.
First, prices have risen slowly at best the past few years, prices if anything are lower than they should be.
Many studies show Houston being 20-30% under-priced. Secondly the oil sector is booming here. Unlike almost everywhere else where $3.00 gas hurts the economy, the opposite is true here. Also, there is a lot of money from California, Texas, etc flooding into the area buying up Real Estate.
I agree they are overbuilding around Houston. But that has been the case for years. That is a big reason why prices have appreciated so slowly. On top of that there is no big financial advantage to renting over purchasing. Rents are about the same as in Arizona, but purchase prices are less than half.
Housing prices in the bubble markets are going to continue to drop, I really believe that. But the bubble markets rise has little effect on Houston, the bursting bubble will probably have little effect on Houston, too.
hlowe,
#1 Fortune has been wrong any number of times. Including those same articles it has printed since 2003 claiming there is no bubble. They didn’t begin to change their tune until this year.
#2 Whether or not that article is “good” is up for debate.
#3 that graph is for: “Here’s Fortune’s forecast for the value of an upscale home (one that sells for double the local median price) in five years.” Personally, I look to the median to see what the housing market really looks like in any given area, since that encompasses the majority of the market.
#4 That graph makes a number of assumptions: “Our forecast assumes moderate economic growth and job creation, and fairly stable interest rates. An unexpected boom or severe recession, of course, would change the picture. ”
Just a few points…
azmiller,
“Many studies show Houston being 20-30% under-priced. Secondly the oil sector is booming here. Unlike almost everywhere else where $3.00 gas hurts the economy, the opposite is true here. Also, there is a lot of money from California, Texas, etc flooding into the area buying up Real Estate. ”
Those arguments just sound the same as they’re no creating any more land, this place is special, everyone wants to live here,etc… that were used to justify the bubbles everywhere else.
DianaK,
I agree with the prevailing sentiment here that the housing market bubble has burst and we are not even close to a bottom. But to characterize Houston as a bubble market is silly.
In the last 5 years Houston home prices have gone up 20%, not per year but in 5 years. Thats less than half the 50% national average and much less than the 100%+ in the bubble markets. In fact Houston since the mid 90’s has gone up between 2-5% per year. To paraphrase the old Wendy’s commercial “Where’s the bubble?”
Twist
In 2006 I purchased a home in Austin with 20% down 30 yr fixed and then moved back to San Diego. I rent that house out to excellent tenants for less than what the competition charges, and I break even with “PITI”. Prices have increase to the point were any closing cost (should I sell) would be paid from the gain.
1) The country is probably in recession and I believe it could get terrible. The Austin home is a risk I consider getting out of because it is so far away from me. But you live their and need local housing.
2) The local economy may grow due to its natural recourses.
3) If you wait for the bubble to burst and clear out before you decide to buy in Austin, you may look back and realize that you could have been paying down your own mortgage with these low interest rates. After all, the down payment you would need is at risk elsewhere, or at the very least earning close to 5% interest in the bank.
4) If you understand the power of leverage, you understand that when real estate goes up say 5% your return is greater than that due to the fact it’s based on house price not on your down payment. Had you purchased in Austin when you started this blog you would be thankful that you gained on your down payment more than if it had been in the bank, and reduced the # of years left to pay off the home.
5) I think the fed is going to inflate their way out of this mess. As a consequence, the lagging effect will be higher incomes which = higher rents in the future.
DianaK 7:27am
1) I understand
2) OK
3) If you divide the home that is double the medium price by 2, you will find the medium. Personally medium does not mean as much to me as it does to you for lots of reasons, but for this conversation, let’s just say I agree with you that median is important to you.
4) Agreed!
Just found this article in Austin American Statesman. Rents are going up.
Once again I forgot to include the link. Here it is.
http://www.statesman.com/business/content/business/stories/realestate/01/09/0109rents.html
Hlowe,
I agree that house prices in Texas are very reasonable, however if people cannot sell their house in other states, then they (majority) will not be able to buy in Texas, so home prices will probably remain stagnant at best in Texas. Home prices in the bubble states are already signficantly declining and will probably accelerate in the next couple of years. I disagree about higher incomes. A lot of incomes are actually going down due to outsourcing the good paying jobs out of the country. The few good paying jobs remaining will have negligible increases at best and will not keep up with inflation. Inflation numbers recorded do not reflect the actual amounts because the government likes to exclude things like housing, fuel and food.
Hlowe-
I always wonder how they calculate the “rents going up”. I read the same thing in the AZ Republic last year- in spite of the fact that as you drove around, you’d see “free tv” or “free ipod” or “month rent free.” By the end of the year they were admitting that the abundant supply of rental homes was hurting rental prices.
I had no problem finding a great rental- granted I wasn’t in the apartment market. I’ve seen “free month” signs around though, and when I read the ads on Craigslist, there are plenty of “bad credit ok” “month free” ads here as well- so it’s hard for me to believe that the rental market is really that tight.