Over the past 120 days oil prices have dropped considerably to well under $100/bbl, their lowest prices since 2011. Will this affect Houston’s robust housing market, which is in so many ways tied to the energy industry? Some speculate that the price drop may be a strategic move on the part of Saudi Arabia as it tries to put pressure on other members of OPEC and Russia. Most of these countries require oil to be above $100/bbl to make a profit. True or not, US production of oil is up by half since 2011, and there is evidence of less demand from China and India. The cause is likely a combination of these variables.
What about the Houston market? With a study of charts plotting quarterly local statistics versus oil prices1, it appears that oil prices must be within a certain ideal range between $55 and $93 a barrel in order to facilitate economic growth. Going outside this range would be suppressing either transportation and home-buying budgets on the high end, or job growth and home demand on the low end. At the current pace of prices, it would appear that job growth may slow and place pressure on rising housing prices. The declines that follow may discourage some newer developments by adding a degree of pressure financially. But the overall effect of the fall in oil prices will be beneficial to the Houston housing market.
Less employment in the energy sector will lower pressure on labor in the construction industry, which has been one of the housing market’s primary cost sparks.
Lower gas prices will make development in more remote markets more cost efficient, making cheaper sources of land available and encouraging development of lots at a lower spectrum of the market. A large portion of first time home buyers in Houston are budgeting under $200K, which is not an easy budget to find within the loop.
Lower energy prices may help the overall economy in other markets that are improving, which should help the share of Houston’s economy connected to the national economy.
Houston’s energy economy consists of several forms of energy, which can be referred to as upstream, midstream and downstream. Downstream energy, which is exploration and production, will feel the effects of a lower price in oil. However, the other two energy sectors, midstream (pipelines) and upstream (petrochemical manufacturing) will probably improve as lower prices drive the nationwide market into a higher level of energy consumption requiring more oil/refined products to be moved (midstream) or manufacturing sees decreased costs for feedstock (upstream).
The Houston economy is tightly bound to the energy industry. What is important to keep in mind is that the energy projects that keep the Houston energy economy afloat are typically significant, long-term investments that are not particularly affected by daily or weekly price changes. The long-term worldwide trend for oil consumption is still on a long upward curve. In the short to midterm perspective, the recent drops in energy prices should actually prove beneficial to Houston’s economy, not detrimental.
Era Of High-End Apartments In Inner City Houston
Josh Foster, inner loop sales
has been a renaissance of high end apartment development going on in Houston
that has not been seen in years. This will lead to some fantastic changes as
more people than ever continue to move to the Houston area, spurring the local
economy, with no end in sight. According to the Houston Chronicle, 125,000
people moved to the city in 2013, with a similar number having arrived this
year. What brings them? Houston leads the nation in job growth, to name one
reason. It added 119,400 new jobs over the last 12 months according to
realtynewsreport.com. These jobs are what pushes the multifamily market
combines with another trend, which is taking place across the nation:
urbanization. Houston is filled with young professionals fresh from other parts
of the country, and they are not interested in homeownership. This trend is
reaching its peak, as apartment occupancy rates in the city of Houston hit 91%,
almost an all-time high.
Montrose area and all of the inner loop west of 288 has seen a kind of high-end
construction boom since at least 2012. An old complex on 1920 West Alabama, as
well as complexes on 2810 McDuffie and 1924 Marshall - where residents had
enjoyed very low rents for years - are in the process of being demolished and ground
will soon be broken for a huge luxury mid-rise. The eclectic area will feel the
change, as property values will be increased and a more urban feel will
continue to sweep Montrose. This will be in addition to a 20-story apartment
tower on Chelsea Boulevard being built just south of 59.
in the year, according to prnewswire.com, The Muse Museum District was built on
the cusp of Montrose and the Museum District by developer Behringer Harvard Multifamily
REIT I, Inc. The development, on 1301 Richmond Street, is four stories,
features eight-foot doors, ceilings of over nine feet, and full size washers
and dryers. Flooring includes hard-surface planking in the living and dining
areas and stone flooring in the kitchen and bathrooms. The luxury kitchens
feature stainless steel appliances, with flat-top stoves, granite countertops,
double-door refrigerators, 42-inch hardwood cabinetry with under-cabinet
lighting, tumbled-stone backsplashes, kitchen islands, and under-mount sinks.
Baths feature framed mirrors, oversize Roman tubs with tile surrounds and
separate showers in select units. The units start at $1400.00.
end, high budget multi-family apartment buildings are springing up in areas
surrounding downtown that haven’t been touched by developers in years, as well
as downtown itself. 10 new apartment buildings are in the works for the downtown
area this year. The new construction will more than double the current population
of the downtown area, which may completely transform it from the ghost town it
is now into something of a more inhabited region. That is a status Houston’s
central business district has been seeking for decades to have to no avail.
to the Chronicle, Houston’s Camden Property Trust is expected to break ground
in Midtown to the south with high-end multifamily units even more desirable
than the ones that have already been appearing everywhere in the past couple of
years throughout Montrose, Upper Kirby and the Heights. There is a proposed
eight-story building of units in one project, and another separate project,
both of which are qualified for tax breaks the city offers to builders
developing in the inner city. Such development has already been the trend in
other major metropolitan areas, according to the chair of the company.
further to the south, next to Hermann Park, Tema Development Inc. has just
begun construction of a really big $75 million luxury apartment project, and it
isn’t expected to reach completion until late 2016. It will contain 224 units
and stand seven stories. It will include five penthouse suites, all overlooking
the nicest view of the park. There will be a 12,000-square-foot courtyard
containing a fountain, and a 9,000 square foot area with lounge, bar, club,
conference area, fitness center, yoga area, swimming pool with a sunbathing
ledge, fire place, barbeque spot, common Wi-Fi zone, bicycle storage and
electric car charger.
Texas Housing Prices Opposite From National Curve
The Texas housing market has done nothing but exceed
expectations in 2014. In Dallas, September home prices rose 7.4% compared to
the same period last year and 0.3% from the previous month, according to the
latest S&P Case-Shiller Home Price Indices.
For some reason S&P does not keep record of Houston home
prices, but Dallas numbers are very similar to its rival coastal city to the
south. Dallas and Texas home prices are very different from the rest of the
country, where the price of homes slowed down almost everywhere else as fall
arrived. Elsewhere only Charlotte, NC saw an increase in home prices.
The Houston market has performed in a manner opposite to
that of the rest of the country, which is typical. In the rest of the nation,
the 10- and 20-City Composites are up 4.8 and 4.9 percent compared to the same
period last year respectively, which is down from August, in which the yearly
gains were 5.5 and 5.6 percent respectively. This is the smallest annual
increase in a couple of years. Also, the National Case-Shiller Index went down
0.1% from August to September, which was the first monthly decrease for the
index since November 2013. Eighteen of the 20 cities tracked by Standard and
Poor’s had slower annual housing increases from August to September. 2014 housing prices as of September are
averaging 5% below what they were in September 2013, but still well above what
they were in 2010 and 2011, according to the Wall Street Journal.
Depends on the non-mortgage debt held by the borrowers....see full article linked below:
Source: “The Biggest Drag on Home Ownership: Down Payments or Debt?” RealtyTrac (Nov. 4, 2014)
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