While other cities may be cursing high gas prices, at least one city may be cheering: Houston, Texas. With its strong oil and gas industry, Houston’s economy continues to expand, supporting the real estate market.
While other parts of the country have been hit hard by the mortgage crisis, Houston has remained resilient, as more workers enter the area to fill jobs—and buy houses. Despite an overall drop in sales, housing prices have continued to rise.
“Houston is doing better than most of the country, mostly due to energy,” said Barton Smith, economics professor and director of the Institute for Regional Forecasting, University of Houston. “We’ve been affected by the effects of the real estate crisis in the last 12 months. The difference between Houston and the rest of the country is that we are holding up against the storm, compared to the rest of the nation.”
The oil and energy industry is attracting new workers, keeping the real estate market active
Houston's biggest economic fortress is its oil and natural gas industry. Energy-related industries comprise nearly 50 percent of jobs in the area, according to the Greater Houston Partnership, which promotes business in the region. The Houston-Sugar Land-Bayton Metropolitan Statistical Area posted an average of 91,000 new payroll jobs each year from 2005 to 2007, with another 53,000 new jobs added for the first half of this year.
The strong energy economy has sheltered Houston’s real estate market. “Houston is fortunate in that it has been on much stronger footing than many other markets around the country,” said Michael Levitin, chairman of the Houston Association of Realtors, or HAR, in an e-mail interview. “That’s due largely to the fact that the flourishing energy industry makes up a huge part of the region’s economic base.”
Houston’s real estate market is also holding steady, because it did not have the massive price jumps that other parts of the country had a few years ago. “This area also did not experience the pricing bubble that created bloated home values in areas like California and Florida, (which) are now hurting,” said HAR’s Levitin.
Although total residential sales continue to decline, prices for single-family homes and condos have been rising steadily. According to figures released by HAR, the area’s housing prices have risen steadily in the past decade, with the area’s average and median housing sales hit an all-time high in June this year.
In July alone, the average price of single-family houses—which is calculated by adding up the prices of all houses sold and dividing it by the number of houses—was $226,072, an 8 percent increase over the same month last year. The median price of single-family houses—which means the same number of houses sold for less than that amount as more—was $161,370, a 3.4 percent increase over the same month last year.
The numbers paint a picture of more houses sold on the higher end. Sales activity for houses above $500,000 increased 9.4 percent, while activity for those below $80,000 increased 5.6 percent in July, according to HAR.
“More homes with higher values are selling than homes with lower values,” said HAR’s Levitin. “Many of our member Realtors are working with professionals who are relocating to Houston, primarily for jobs within the energy and healthcare industries.”
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In July, average prices for townhomes and condominium were up 4.7 percent to $166,547 over July of 2007, and the median price jumped 11 percent to $135,000 in the same time period, according to HAR.
But Houston has not escaped the nation’s mortgage woes. Home sales are down from 2006 and 2007 figures, but are on par with 2005. For July alone, total number of sales for all property types this year dropped to 7,052, down 12.7 percent from the previous July. Total dollar volume also fell to about $1.5 billion, a 6.7 percent decline from the same month last year. In the first half of 2008, sales of new homes also dropped a whopping 31 percent, according to HAR figures.
“It’s better than the 17 percent decline nationwide,” said economist Smith. “But home sales are basically flat.”
Houston’s commercial property market has also reaped the benefits of the strong economy, but is slowing because of tighter credit. “Tightened credit standards are having an impact on the commercial transactions and development,” said Sam Scott, Director of Commercial Services, Houston Association of Realtors, by e-mail. “The pace of transactions has slowed, but prices of properties are remaining steady. “
Tighter credit has also slowed development in the outer fringes of the city. “A couple of years ago, the expectation was that these tracts would soon be viable for suburban developments,” said HAR’s Scott. “Now lenders are not willing to speculate on appreciation.”
Houston’s retail market is also reaching saturation point, said economist Smith, as developers over-anticipated retail growth in the last several years. But he said that office space was doing well, as vacancy rates were coming down. “The balance between supply and demand in that market is favorable,” Smith said.
The Greater Houston area is one of the fastest growing regions of the country, reaching a population of about 5.6 million in 2007, making it the sixth largest city in U.S. Located in West Texas, bordering the Gulf Coast, it comprises 10 counties, including the cities of Houston, Sugarland, Bay Town and Galveston.
