Houstonians are earning more, but is it enough?

by James McClister


Home prices in Houston are out-pacing wage growth, new research from ATTOM Data Solutions confirmed. It’s a foundational problem that if the city doesn’t reverse, could lead to the market’s eventual implosion.

Some people called the 2007-2008 downturn a financial hurricane, others called it a nightmare, everyone called it a crisis. “It’s a crisis if everybody calls it a crisis,” said Morgan Downey, a managing director of LaSalle Global Fund Services in Europe.

Houston’s been resilient

But Houston wasn’t a market immediately plunged into the dark ages. It was resilient. Home prices in the greater metropolitan area didn’t drop much from 2005 to 2009, and in some instances, they actually rose. And wages followed suit.

In Fort Bend County, home prices increased about a $1,000 from Q1 2005 to Q1 2009, while average annual wages went up more than $7,000. Over the same period, the median sales price in Montgomery County jumped nearly $5,000 alongside wages, which increased $6,552.

Texas is a non-judicial state, which means completing foreclosures doesn’t require the presence of a judge. Being able to clear foreclosures quickly helped Houston avoid a backlog, like the one we see Florida still working through today; and with home prices remaining historically affordable throughout the early crisis while wages consistently increased, thanks in large part to a booming energy industry, the city was able to avoid the more depressive narratives playing out elsewhere. But it did slow.

Home prices in Greater Houston’s counties hit different lows at different times. Galveston County’s sale price decline hit bottom during the first quarter of 2009 at $136,861, as did Harris County at $134,425. Chambers County hit a low point in 2011, as did Brazoria and Liberty counties. Prices in Fort Bend and Montgomery counties never went lower than 2005 levels.

The writing’s on the wall

But when the nation’s real estate market started to recover, so did Houston’s. The only difference is that Houston’s hadn’t fallen so far that a strong recovery was necessary. So when home price appreciation really hit its stride, it quickly become too much and outpaced wage growth.

Low Point Weekly Wages (low point) Sales Price (low point) Q1 2016 Weekly Wages Q1 2016 Sales Price Weekly Wage Increase Sales Price Increase
Brazoria Q1 2011 $920 $139,650 $1,065 $207,869 15.70% 48.80%
Chambers Q4 2011 $978 $71,762 $1,119 $139,087 14.40% 93.80%
Fort Bend Q1 2005 $820 $172,900 $982 $254,097 19.70% 46.90%
Galveston Q1 2009 $865 $136,861 $919 $193,515 6.20% 41%
Harris Q1 2009 $1,145 $134,425 $1,381 $188,424 20.60% 40.10%
Liberty Q2 2011 $696 $84,987 $765 $145,284 9.90% 70.90%
Montgomery Q1 2005 $670 $158,807 $1,025 $231,321 53% 45.60%

As we see from ATTOM’s data, since the various home price lows Greater Houston’s counties, wages have failed to keep pace with appreciation.

In Chambers County, for instance, weekly wages from Q4 2011 to Q1 2016 have increased only 14.4 percent compared to a 93.8 percent leap in home prices. That translates to a $7,332 increase in annual wages compared to a $67,325 increase in the area’s median home price.

The trend is typical throughout Greater Houston, and it’s led to several rating agencies designating the city’s market “overvalued.” It’s also something we saw throughout the country in the build up to the market collapse. If people can’t afford homes, home prices fall, people lose equity, investors lose returns, builders and banks lose clients, and eventually, the market tumbles.

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