MARKET DEMAND
AND INVENTORY

Q: What do you see happening to housing market demand over the next 12 months?

Chaille Ralph: Rather than a soft landing, Houston is going to decelerate to a more normal and sustainable growth rate and correspondingly housing sales. I believe we’ll see a doubling of the inventory of homes listed for sale, which would increase the estimated number of months supply from 2.8 months to 5.6 months – still less than a normal six months. All told, from the economic indicators that Dr. Jones has evaluated, 2015 points to a strong and healthy economy and housing market for Houston.

Shad Bogany: I think in Houston we’re going to continue to see steady growth. I think one of the reasons – this is the best housing market since I’ve been in the business – but what I think is holding us back is that new homes and lot availability is not very on the new home side. A lot of pressure is being put on the resale side, but the new home market has not caught up with the demand out there. They’re dealing with lack of construction workers, lack of cost of construction materials to build houses, plan development. We don’t have enough lots available for them to be able to buy. I see that the workforce housing – those people are going to be totally priced out of the market. I also see that the students coming out of college with all this college debt, loan debt, those people are not going to be able to buy. What concerns me is building all these apartments, so those people are going to go rent apartments. The flip side of it, because we’ve had this lower interest rate, is it’s cheaper to own than to rent. But how do you get to that point if you’ve got $200,000 in college debt? So then you go to rent an apartment for $1,500 a month. I think the middle class and the workforce housing people are going to be really strained in the coming year. I think there will be a loosening of the credit guidelines a little bit, but I think there’s still going to be more money, there’s still going to be lack of inventory unless the builders can grab it up.

If you look at all the builders, hardly anyone is building starter homes anymore. Everything is $200,000 and up. I think that’s going to put a lot of pressure on the workforce.

What do you see happening with the job market, and how will that affect loans/housing?

Brian Martucci: I think the job market is very weak. People are either underemployed, working at a job they don’t want, not working in a position where they want or they’re unemployed. The reason the unemployment rate has gone down is some people have just stopped looking. I think it’s going to stay weak or get weaker and that’s not a good thing for housing.

Cary Cox: On a national level, I think we’re going to see a slowdown all the way around unless demand picks up worldwide. I think locally, Texas has escaped a lot of the pain. I think we’re going to be in for pain with oil prices where they are, as the driver of our economy.

Q: How will inventory move? What will buyer/seller markets be like next year?

Shad Bogany: I predict that we will get more houses being able to be sold next year, availability of a higher inventory. I am relying a lot on the builders getting caught up with building. The only way that we can reverse the inventory shortage is if builders start building. One of the concerns I have for the builders is the city being able to get permitting out. A lot of builders don’t build in the city limits of Houston anymore because it’s too hard to get building permits. When it takes you three months to get a permit and four to six months to build, If I sign up for a deal with an interest rate of 4 percent, who knows what it’s going to be 10 months from now?

I am predicting that I think inventory will rise a little bit because I think the builders will come on board by then and I think the city will fix their building permit problem.

Robyn Jones: I think it’s going to slow down some. It got crazy here to the point where we were getting 15 multiple offers on a home. We’re already starting to see that slow down. In terms of inventory, I think it will slow down a little, but in this area the truth is you still have a lot of people downsizing, scaling up, taking a job in Dubai and getting transferred overseas. I think it’s going to be somewhat steady, but I don’t think it’s going to be as ferocious as it was when the interest rate hit that 2.75 percent a couple years ago.

Q: Home price increases this year have been considerable in several parts of the country, like California, Florida and Texas, often outpacing 2013. What is going to keep homes from becoming overvalued in 2015?

Shad Bogany: I think there’s some concern that we might be playing with a bubble. The reason that I don’t think we’re there or we will get in it in 2015 is simply because the increase in demand from the builder’s side. I think the builders who have been behind the last year or two and I think year three, they should be up and running. If you look around the city, they’re putting in new subdivisions right now and they’re coming on board. I think demand is going to be okay because there’s so much land here so you can just build and build and build, where versus California and Florida, you’re very limited on your land and what land is available to build on. I think Texas is going to be okay. We’ve always been kind of Steady Eddie here and I think the demand is going to continue to be there because I think the builders are going to be there. I just don’t think we’re at a bubble yet.

I am concerned about certain neighborhoods like the Heights where they’re just overbuilt and just building everything. I am concerned somewhat with the high end apartments that they’re building. How many apartments can you build with $4,200 a month rents? I do have some concern about the luxury apartments and the high rise apartments that they’re building. They’re trying to meet the demand, but who can afford that?

Q: Investors have been leaving the housing market for more secure and lucrative options. Do you expect this trend to carry over into 2015, and if so, is that good or bad or both for the market?

Shad Bogany: I think if investors are in the market and pushing the prices, you have an opportunity to get a bubble. I see investors coming back into the market, but there is a slow process of it and I see investors competing with first-time homebuyers for some of these entry-level homes. Long term, I kind of like it the way it is. You’ve got some investors in there. If you go and look at the history of bubbles, about a third of those people purchasing homes are investors. The Houston market has always been kind of below the national home average, so we’ve got room to grow. In California, you really don’t have that room to grow. Florida’s probably got that room to grow because if you hit bottom, you can’t do anything but go up.

Florida probably has a little bit more opportunity for investors than I would say in the Houston area. We’ve always been below the national average. Houston is the most affordable major city in the country. And yes, I’m getting more calls from investors, but the investors I’m hearing from are buying mostly entry-level homes. I just can’t see an investor buying a house in River Oaks and sitting on it. I just don’t see it happening.