Houston Real Estate could be the right spot in the Housing Market Sluggish Recovery

Clear Capital, a provider of real estate valuations and data, said in its Home Data Market Index Report last month that it expects the Houston-Sugarland-Baytown area to see 3.6% growth in home prices, second out of fifty metropolitan areas included in the report.  Washington, D.C. led the way with a projected 6.5% growth, and eleven other areas, including Dallas-Fort Worth, New Orleans, and Memphis are also expected to make modest gains this year.  Nationwide, though, home prices are expected to slip an average of 3.7%, after a 4.1% decline in 2010.  It’s not hard to see how even the modest growth expected for Houston puts us close to the top of the nation.

A couple of areas for optimism exist in the national picture, though.  First, the roller coaster ride home prices took in 2010 isn’t expected to repeat itself.  Last year, as government incentives encouraged homebuyers in the spring, average sale prices rose 9.7% between March and August, only to fall by 9.4% over the remainder of the year as the tax credits expired and foreclosure sales increased.  Now, as markets shed the after-effects of those tax incentives, prices - while lower - are expected to stabilize in 2011.  Additionally, nearly half of all the price declines predicted in Clear Capital’s report are expected to hit in the first quarter.  In fact, 14 of the 50 markets reviewed are expecting gains in the latter half of 2011.
Another positive prediction for Houston came from Mike Inselmann, president of Metrostudy research firm, last month.  Speaking of the local homebuilding market, he said he believes it has hit its bottom and is on an upswing.  After a flat couple of years, Inselmann predicted increases in home starts between 1.3 to 6.6% over 2010.  And while he noted that it’s hard to call a little over 1% growth a recovery, again it’s all in the perspective.  “We’re at the bottom,” he said.  “Most non-Texas markets are still searching for the bottom.”

So what’s helping make Houston’s future brighter?  As Alex Villacorta, senior statistician at Clear Capital states, “Understanding which path a given market is likely to follow is dependent on several key factors, but the two clear drivers are local unemployment rates and the prevalence of distressed homes.”  Houston’s percentage of homes sold as foreclosures is around the national average of 26%, but it had a year-over-year drop in January of 2%, a positive sign.  And as for jobs, economic forecasts are predicting over 18,000 new jobs this year for Houston.

With jobs, of course, come people.  Allied Van Lines’ annual moving survey listed Texas as the state with the most net relocation gains (i.e. more people moving in than moving out), a title our state has held for the last 6 years.  And people need homes.  As Inselmann pointed out, 15,000 apartment units were absorbed in 2010, leading to higher demand this year.  Higher demand generally leads to higher rent, and higher rent will send some renters into the homebuying market.

Some of these predictions seem to coming to pass.  The Houston Association of Realtors’ market report showed that total home sales rose in January for the first time in seven months.  Additionally, average home prices increased 2.2%, continuing an upward trend that began in mid-2010.  A single-family home’s average selling price was $196,879, the highest on record for a January in Houston.  While much of the price increases are attributable to gains in the luxury home market, the $150,000-250,000 market segment also saw growth starting in December, its first uptick since last May.  In fact, all home markets saw increases last month, and while we’ll need to see a few more months of growth before calling it a trend, Houston’s market certainly started 2011 on a positive note.

Of course any recovery is tenuous, and factors like oil prices and state budgets will no doubt have an effect.  But Houston is well-positioned to lead the way towards a steady housing recovery.  To quote Mike Inselmann, “The next 10 years are a great time to do business in Houston.”  It’s not a bad time to live here either.