Where is the real estate market heading? Is the housing market recovering or not, and is Houston an exception? As new data come into pay, we real estate professionals focus on one data point to say great, but we need to see the broader picture.
Every so often, I see the need to write an opinion piece about what is happening in the real estate market, and I feel that need again. The one situation that I notice is where real estate professionals, or even journalists, take one bit of data as a sign that the real estate market is or will be doing better. I am guilty of this myself. About a week ago, I discovered that nationally housing starts are up by 22%, so I let go a tweet about how happy I was at that news. I then saw an update from a real estate agent about employment numbers rising in Texas. People with jobs might want to buy homes, making the jobs number seem positive for real estate. In a way, we are misleading you.
The decision to purchase a home is a complex financial scenario for the buyers. There are many factors that go into the decision, and there are many factors behind each financial metric or other real estate data, which may not bode well for the housing market. Take a look at housing starts. For me, this increase indicated a belief by builders that there was a need for new inventory. Shortly after hearing the news about housing starts, I heard the bad news that the foreclosure process was being mishandled by lenders, driving more homeowners into foreclosure when that course may have been the wrong one to take. This second bit of news shows that more inventory will be coming onto the market. Another factor to understand about housing starts is that a builder does not have to actually begin building. Housing starts is usually based upon building permits, which are pulled at the beginning of a project. If a builder has ten lots, he can obtain ten permits, but he might only build five homes. I know of a situation where a neighborhood had $350,000 homes being built by a builder. The original builder moved out of the area. The second builder came in offering homes for $100,000 less. Whereas the first builder only constructed a home for a specific client, the second builder built homes as inventory to have quick move-ins. Quite a few homes are selling, since the new owners like the fact that they are getting a deal.
About the jobs number, we do see more employment in Texas. In fact most sectors are doing quite well. We can also see the incomes are rising. Taking a closer look at this data, we see that one sector, construction, has lost many jobs, and they are not coming back right now. That bit of news does not sound good for real estate. What about the increase in income? Here again, we may have to dig deeper. Unfortunately, I have not found the best breakdown of this number, but this could be that out of work people found jobs. From zero income to an income is an increase. I have also heard that the added jobs may not have the best salaries. I have to look into these numbers further. I am concerned that the construction industry is not regaining jobs. To me this is an indicator that new construction on a grander scale is not coming back quickly.
In my own neighborhood, I have witnessed houses stay on market for many months. If the homes are changed from being for sale to being for rent, a new occupant is soon found. I cannot say that this is the trend, but the fast pace of rentals being occupied demonstrates to me the lack of confidence people may have in buying a home. Will my job be there tomorrow? Who wants a large financial burden if your income is not certain? However, there may be other reasons for people wanting to rent: mortgages. New lending rules by financial institutions are making it more difficult for people seeking homes to buy them. Renting could be the best option. Lenders want people to be thoughtful with their financial life again, and we may not have been prepared for that fact.
What does all of this mean for the Houston housing market? Basically, we are up in the air, and we will be for at least the next year. Before the housing market can move onto greener pastures, we have have to deal with the inventory that is on the market. The rate of foreclosures is still a concern. Simply because many lenders have stopped to review their practices, does not mean that we will be seeing dramatic decreases in foreclosures. It might mean that we will be seeing foreclosures entering the market later. We will not know, until the lenders decide. Once construction jobs return and builders are completing new homes, we will be heading in the right direction. The good news is that homes in Houston are not loosing value overall. Our homes were not overpriced, so home values did not fall so dramatically. Until we see signs of a real recovery, buyers may be renters.