August 10, 2005
Houston housing supply update

I have some followup information to this post, in which I linked to a Nancy Sarnoff column about a potential oversupply in the Houston housing market. After getting some feedback on it, I sent email to Sarnoff, Dmitry Messen of the Houston-Galveston Area Council, and Dr. Barton Smith of the University of Houston. Here's what I learned:

- Sarnoff did not have an answer at hand to my question about whether or not household growth was keeping up with the growth in new simgle-family housing starts. She did, however, say that after she wrote the story two months ago about growth in the far-flung exurbs (see here for my blog post on it) that she wants to do a story that investigates that question. I responded that I'd be very eager to read such a piece.

- Messen pointed me to the 2025 H-GAC Regional Growth Forecast, for which there is a large-PDF executive summary here. What I gleaned from that is that their "aggressive scenario" projects approximately 1 million new households in the greater Houston metro area (more on that in a moment) by 2025. You can do the math from there and conclude that in that scenario, we'll be adding 12,500 new households per quarter for the next 20 years, which is a fair amount less than the 14,500 new homes that were built last quarter. That's a big simplification, one which doesn't take into account a whole bunch of things, but I think it provides some context. Long-term, obviously, a new house build rate at that level is too high. Even in the short term, you probably can't have too many months like that, at least not right now. It's my opinion that if we hear the same news about record-breaking numbers of new houses being built over the next couple of quarters, we will see a slowdown in that market shortly thereafter.

- Sarnoff confirmed to me that the new housing growth was for the Consolidated Metropolitan Statistical Area (CMSA), which consists of Brazoria, Galveston, Chambers, Fort Bend, Harris, Liberty, Montgomery and Waller Counties. This is the same area for which H-GAC did its household growth projections.

- A question which I haven't asked anyone yet is how apartment complexes fit into this. There's two being built near where I work - one at Old Spanish Trail near Greenbriar, the other at Kirby and Braeswood - and I know there are many others out there. I don't think they're being counted in the numbers Sarnoff cited on Sunday. How many new apartments are coming online each quarter? What effect will that have on the new house market?

- Via Colorado Luis, there were over 12,000 foreclosed homes on the market in the state of Texas just last month. How many of them are in the Houston CMSA? Foreclosed homes tend to be cheap - what effect might this have on the new house market? And on a side note, how many interest-only mortgages have been written recently in Houston? Is that number increasing? If so, is that a sign that we're running out of new potential house buyers?

That's it for now. More when I get it.

Posted by Charles Kuffner on August 10, 2005 to Elsewhere in Houston | TrackBack

One interesting issue with the H-GAC regional growth models is that they assume a positive economic benefit from increasing energy prices as oil supplies begin to dwindle. However, the price of fuel is not modeled to increase as dramatically, allowing continued growth in fuel-dependent activities such as driving. So there are some significant problems with the regional plans that derive from inconsistent assumptions.

Posted by: John Wilson on August 11, 2005 9:46 AM

Don't forget, you don't necessarily have to get new households: existing renters can convert to owners (which they are doing because interest rates are so low). Also, there's a fair amount of tear down and rebuild, so those are really replacements, not new houses. An existing household can divide into two households too. I imagine a cascade: a new cheap house becomes available -> renter buys and moves in -> apt owner offers rent discounts to lure new tenant to replace that renter -> twenty-something moves out of parents' house into their own apt.

Builders are pretty good at matching supply to demand. They constantly read the market and adjust. There's a steady stream of data of what is selling how fast and at what price. If they sense overbuilding, they'll back off quick. I don't think Houston is in any danger of a bubble or any kind of crash.

Posted by: Tory Gattis on August 11, 2005 2:57 PM