Tuesday, May 10, 2005

Houston housing: steady as she goes

On Sunday, the Chronicle had some great color-coded maps of the local real estate market in the Business section (right side chart links). Bottom line: even though we were flat last year, on a longer-term basis we're appreciating at a very reasonable, sustainable pace. Like that bear-porridge story I can't remember: not too hot, not too cold.

We're not ultra-hot like the east or west coasts, where home building is more restricted, but they're heading for a crash and already feeling the hit to economic and population growth (Boston, in particular, has been lamenting their inability to keep the grads from their wonderful universities because of outrageous housing costs). A hot real estate market is like a one-time-shot bargain with the devil: you get a short-term boost as everybody feels wealthy, but ultimately the higher housing costs stunt economic growth and drive away the middle class, who cash out of their house and retire to cheaper digs, usually in another state - thus denying the local city much of whatever wealth benefits do accrue from high real estate appreciation (right now, Nevada, Arizona, and Florida are the big beneficiaries of the cash-out and move phenomena). That generation of home-owners make out like bandits at the cost of future generations of home-owners. Companies quickly realize they can't afford to pay new employees enough to afford a decent house, so they start sending operations elsewhere, even offshore. Economic stagnation sets in.

A few observations from the articles and maps:
  • Houston continues to be the most affordable big city in America, with average housing costs almost $50K below the national average ($136K vs. $184K)
  • Las Vegas suddenly hit a wall on available land to build (surrounded by protected federal land), and housing values shot up almost 50% in one year as rampant demand from evacuating Californians ran ahead of abruptly slowing supply. If this keeps up, I'm not sure where the blackjack dealers and showgirls are going to be able to afford to live. Casinos will have to start building their own employee apartment complexes.
  • Waterfront in Galveston and Brazoria counties is hot and getting hotter. I think you'll see it as a major retirement destination for Texas baby boomers, especially with the benefit of UTMB health care.
  • The core is very healthy, with good appreciation in most zip codes, including many of the least expensive neighborhoods. Central Houston is getting more and more attractive as a place to live, with a growing list of amenities.
  • Evidently the hottest of the hot areas are inside the loop near Memorial Park and in Bellaire. I live in Meyerland and can attest to the Bellaire tear-down-and-build-a-McMansion phenomena, which continues to amaze me with their ability to cram ever more house on ever smaller lots (or, in some cases, spread across two lots). I kid you not, somebody even built something strongly resembling a medieval castle across from Bellaire High School (I can almost picture arrows being poured from the ramparts onto hordes of attacking teenagers... a la Lord of the Rings).
  • Good value but not much appreciation in the outer burbs, which you should expect if you buy a house there. The tradeoff is that you get a great new house in a nice new subdivision, but the house depreciates as fast if not faster than the land appreciates, so you generally stay just about even, mainly because even newer houses are available not far from where you live.
Wondering what the number one thing is the city can do to improve home value appreciation? Improve education. School districts have a big impact on values. If HISD makes good progress, home values will have nice gains for years to come.

(Addendum on businesses fleeing high housing costs: from Orange County, where the average home is now over $600K: "Fluor is the third Fortune 500 company in a week to say it is breaking some Orange County connections (HQ moving to DFW). Last week, Boeing Corp.said it was moving key rocket jobs to Colorado and Pacific Life said it was moving its head office to Omaha, Neb., to save an estimated $10 million a year.")


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