Houston has struggled with depleted inventories and strong demand, but a new survey finds the city may be ready to leave that problem behind.

Houston real estate professionals will be happy to learn that third quarter residential building is up, according to a survey from Metrostudy. The research group found that new home starts have nearly doubled since 12 months ago, rising 9 percent year-over-year to 8,531.

In recent months, Texas’ hottest market, and arguably the country’s, has struggled to satisfy the overwhelming demand, largely a result of the jobs attracted by the energy industry. As I predicted in a November 2014 article, a drop in oil prices, which has been a bit steeper than previously anticipated, has led to an injection of labor into the local workforce as energy companies shed positions to account for losses. As a result, developers and construction crews are being granted a reprieve from the crippling labor shortages that have held building back.

Metrostudy’s survey concluded that construction in Houston isn’t just growing, it’s shifted course and is now striding along a much more stable and measured trajectory.

By the Numbers

While Houston is moving towards a healthier market, there’s still a mix of both bad and good, as Metrostudy’s survey pointed out. Further findings included:

• 16,931 homes are currently under construction, which represents a 7.3-month supply and a yearly addition of 2,200 homes.
• The level of finished but still vacant homes has also increased, rising 8 percent from the same time last year to 3,453.

Affordability is Not a Long-Term Guarantee

At the moment, Houston’s market, though performing well, is in an obvious state of transition, working to move out of the boom and post-crisis years and into an era of increased stability. One symptom of this transition, as Metrostudy’s Houston Market Director Scott Davis pointed out, is the number of annual starts compared to annual closings.

“While annual starts have outpaced annual closings since 2012, closing have increased steadily over the last thirteen quarters,” he said. “In the third quarter, area builders closed 7,625 new homes, bringing the annualized total to 27,647. This level of activity represents a 9.2 percent increase from the prior quarter, and a 9.4 percent gain from a year ago.”

Davis said that as Houston continues to mature, it’s likely we’ll continue seeing starts surpass closing, but added that the sales occurring today are much healthier than they were in 2009 when levels were similar.

Moving through the rest of 2014 and into the new year, continued growth and viability will hinge on a small variety of factors, according to Davis, which include “strong economic fundamentals, very low mortgage resale inventory and high affordability resulting from continued low mortgage rates.”

“Also contributing to high prices on the supply side,” Davis added, “is the increase in input costs such as land, labor and materials.”

While Houston stands to ride the wave of affordability for the near future, in the long-term, residents will have to face what Davis described as the “eventuality of interest rate pressure and high prices.”