Houston Home Building to Churn Until 2018

HOUSTON – Houston has more new home construction than any other city in the nation and the building boom is going to get even more intense in the next few years, before some softness occurs in 2018, a national housing consultant predicts.

“Construction is growing much faster here than anywhere else and the economy is much stronger than anywhere else,” says housing consultant John Burns, who heads Irvine, Calif.-based John Burns Real Estate Consulting.

Houston had more new-home starts last year than the entire state of California, he says, and it will continue to be the nation’s top spot for building for a long time.  “I think it’s going to last for quite some time because Atlanta and Phoenix are the only two that are challenging and they are way behind.”

Burns was in Houston this week to address developers, home builders and real estate brokers at the Urban Land Institute’s Suburban Marketplace conference at the Marriott Westchase.

Houston’s new-home prices are at an all-time high, Burns says. With the economy strong and the supply of new homes very tight, home prices will continue to go up, probably about 5 percent this year, followed by a 4 percent gain next year.

“With only a three months supply of houses on the market, prices have to go up,” Burns says.

Houston builders could be building and selling 50,000 new homes in 2014, but a shortage of labor and quality lots is suppressing the local construction industry somewhat.

Developers are responding to the need for more lots by creating new communities, such as Pomona, which was recently started by Ross Perot Jr.’s Hillwood company in Manvel, south of Houston.

Burns’ survey of the best-selling master planned communities in the nation shows that 10 of the top 25 are in Houston. “This is the capital of suburban master planned communities in the country,” he says.

Burns projects that Houston’s annual new-home starts will increase about 13 percent annually over the next three years, peaking at 50,000 starts in 2016. The city, boosted by the energy and healthcare industries will have rising employment growth, topping out at 100,000 new jobs added in 2016.

Today’s conditions are tough on the first-time homebuyer. Thirty-year mortgage rates, now in the mid-4 percent range will be rising over the next few years, topping out at 6.3 percent in 2017, Burns predicts.

Younger buyers and would-be homebuyers are saddled with student debt that has tripled over the last eight years, Burns says. And inflation adjusted incomes for the 25 to 34-age bracket has been falling slightly.

Fewer apartment dwellers are moving out of apartments to buy homes these days. Only 15 percent of apartment residents today say they are leaving because they are buying a house, down from 25 percent when the starter-home market was at its peak a few years ago.

Houston’s housing market appears to be on a strong run that will continue for at least three more years, Burns predicts. His projections indicate prices will continue to rise through 2017, but will soften slightly in 2018.