The following article originally appeared in the September newsletter to clients of Kiley Advisors, LLC for the purpose of providing the latest leading indicators and industry issues to those clients. Reprinted with permission.
The latest City of Houston permit data provided the local newspapers with headlines announcing that commercial construction was up 40% while residential construction floundered. However, upon closer inspection, the increase in the value of new permits is a direct result of medical, school and public work construction projects, while nearly all other sectors are relatively flat or slightly down compared to a year ago. Also trending is an increasing amount of renovation work versus the new construction, a trend likely to continue in the months ahead.
The drop in residential permits isn’t as bad as suggested either. Builders are finding creative ways to offer homes in a lower price range. Metrostudy is projecting housing starts will end up down about 14% this year when compared to a year ago, but that drops Houston from the largest new home volume market nationally to the second largest, behind Dallas-Ft Worth. Lot deliveries have been increasing, suggesting that some easing in home prices will occur next year – thus increasing the affordability to thousands of families who were priced out of the market in recent years.
As expected, CBRE’s second quarter results for multifamily track the continuing decline of this overbuilt market. With the lightest demand seen since 2009, the multifamily market is expected to deliver approximately 18,000 units this year. Apartment Data Services noted that number should drop to roughly 10,000 units in 2017 and even less in 2018 as the current construction winds down, adding that there are no longer any multifamily projects under construction in the Woodlands. While total occupancy has slipped below 90%, Class B, C and D remain strong. The challenge remains to fill those new vacant units given the job growth projections for Houston.
The latest employment numbers firmly plant Houston’s unemployment rate above both Texas and the United States. We have yet to make it back to our employment peak in December 2014, which increasingly bodes the question of whether Houston has entered the “r” word already. Economists continue to revise their forecasts and debate the price of oil, but most feel the worst is over, and now the very slow ascent can begin.
