Forbes America's 25 Strongest Housing Markets

January 8, 2009

"Texas markets are most set to benefit. Housing values were rising in many Lone Star State towns until oil futures collapsed and agricultural commodity prices fell. But the bottom doesn't look very deep. Moody's forecasts no change for McAllen and a fall of less than 3% for Dallas, Fort Worth, El Paso, San Antonio and Houston.

"Texas has the best large-state economy in the country right now," says Zandi. "Employment is slowing, but its still growing."
http://www.searchsahomes.net/forbes-americas-25-strongest-housing-markets/

1. Houston, Texas

2008 Total Building Permits: 42,697

"The healthiest markets have many things in common. Most of them are great places to live, either close to the ocean, mountains, or major universities. Most of them didn't have a huge run-up in prices during the boom and aren't experiencing rampant deflation during the bust."

"They like to do things big in Houston. Now the metro area, home to nearly 5.8 million people, can lay claim to being the largest home building market in the country, with 42,697 building permits. The market is still benefiting from an influx of population and jobs and rebuilding in the wake of Hurricane Ike. Employment rose 2.2 percent last year, representing the addition of an incredible 57,000 jobs. Home building activity in Houston has only fallen 31 percent since 2005. Also, existing home prices actually rose in Houston last year, 2.8 percent, to $160,200, still a very affordable level"

http://www.builderonline.com/local-markets/the-healthiest-housing-market...

Houston is a completly flat city of 5.9 million with a population of 280 million sorounding it. The Country of NZ is very hilly with only 4 million and sorounded by water, comparisons are a bit lopsided don't you think. Houstons population has grown by around 130,000 a year since 2000, with 45,000 new dwellings/year thats 2.8 people per dwelling.

NZ has grown by 35,000/year and we build around 25000 new dwellings each year, thats 1.4 people per dwelling. We are better than Houston in supplying new housing.

The population growth in NZ is declining. In 6 years population is forcast to grow by only 30,000. With current occupation rates of 2.1 people/dwelling we only need to increase dwelling numbers by 15,000/year, thats 10,000 less than in 2007 The construction industry is in decline because we simply do not have the population growth to support it.

Hugh

You state that

"Housing should not exceed three times gross annual household incomes."

Houses are now on average 100m2 bigger than 20 - 30 years ago. If income has not increased proportionatly then the ratio would be slightly different.

i am not sure of the national average size of houses but based on when I was in construction the average house 25 years ago was 170m2 and an average house of today appears to be about 270m2 which tends to show the ratio needs to be adjusted

Further to the above article - for 2009, according to MetroStudy a leading US construction researcher, Houston expects to get in 20 - 25,000 new family homes and CBRE reports that 11.000 multi units went in during the 4th Qtr - so it is likely through 2009, Houston will put in place 31 - 36,000 total new units through 2009. That represents a build rate per 1000 population of 5.34 to 6.20.

Pretty respectable - with whats going on in the US bubble markets.

Now for the very bad news - California - where the January permitting results as reported by the California Building Industry Association can only be described as a SHOCKER - the worst in recorded history.

The total permits for the month of January were 2007 - annualized just 24,000 or - with a population of 37 million people - a build rate per 1000 people of just 0.64.

The Californians are "hoping" (thats what they live on now - waiting for Federal funds) to get in 56,000 new units during 2009. Keep dreaming.

Bear in mind that through the Depression years of the 1930's the average build rate per 1000 people through that decade was 2.18 / 1000.

Housing bubbles are a great way to decimate housing construction industries, create unnecessary unemplyment and destroy the tax revenue streams.

Hugh Pavletich

Aaron, sadly, rentals have been artificially low because landlords have been looking at capital gains as the main source of income. Rodney Dickens has done some very good analyses of this; he estimated months ago that there is a 42% gap between property prices and rentals; most of which needs to be rectifies by a fall in property prices, but possibly to some extent by a rise in rentals as well.

AllenH, one of the problems we have, is that with restrictions on the supply of land, developers pick and choose what they will do with the available land, to maximise their returns. There is certainly pent-up demand for smaller, cheaper new houses, but nobody building them.

World Bank economist Alain Bertaud did a fascinating study called "The Costs of Utopia", which includes some graphs of housing density in several different cities. The obvious results of the ones with controlled land supplies, is that although larger new homes are initially built at the urban limits, the escalating prices of all properties ultimately result in demand bringing about cross-leasing and infill development closer to the urban limits, contrary to the planners intentions of forcing infill development closer to the centre. The centre becomes simply unaffordable for the most, even at the most intense levels of infill development.

The perverse result of this, is that average commute distances end up higher in such places than in places where land is unregulated, plentiful, and cheap.

It is virtually a rule of thumb that "planning" has worse unintended consequences than the alleged evils it is meant to address.

Hugh's central thesis in this article is that to get the economy going we need to ease restrictions on urban boundaries so that farmers can sell to developers and the new houses (supply) will lower the price. Houston is put forward as the best example of a city with a lack of urban planning that allows it to expand (onto surrounding prairie) meaning supply can keep up with demand and builders are busy as houses are affordable (hence a cure for our economic malaise).

At least I think that is the point. If so how does it relate(just for starters) to Shillers chart of historical American house sales values (existing homes). This would suggest something else at work?

http://www.interest.co.nz/ratesblog/index.php/2009/02/23/heres-an-intere...

Steptoe

Taken fron infometrics web site

New houses in New Zealand have been getting bigger. Over the last 15 years, the average new house size has increased by 42% (from 140m2 to 195m2).

over 20 - 30 years a 100m2 increase????. Quite possible

My figure of 100m2 was from an architect who no doubt builds on average a larger size of house.

However you look at this, a figure of 42% size increase over 15 years must alter the ratio of home affordability. The ratio of a home being worth 3 times the average income must now be at least 4 x average income

It is folly to rely on historic ratios and base present values on this

Hi Matt in Ak

the point here is that the ratio of 3 -1 of house price to average income needs to be revised as the average house size has increased.

That the average size of the average house has increased is a proven.

If the ratio is now more than 3 - 1 is it because houses are over priced or that wages are too low

May I suggest a few of you go to my website at www.PerfomanceUrbanPlanning.org - and read in particular 071111 dealing with land supply - 080428 How prescriptive planning degrades housing productivity - and 080810 Understanding Housing Bubbles.

The point I would like to focus on now is the catastrophic situation in California - where in a release dated 24 February, the California Building Industry Association CBIA - reported just 2000 permits issued for the month of January. By 12 months - thats an appalling 24,000 and with its population of 37 million - a build rate per 1000 people of 0.64.

Even I didnt think it could get this bad in California.

If United States (population 305 million) crashed to these levels of 0.64 / 1000 - just 195,200 permits would be issued nationally. New Zealand and Ireland - housing construction would crash to about 2,752 annually from the current aenemic 14,000 or north of 30,000 annually as it was back in mid 2004 at the peak (with respect to New Zealand).

The other great disaster of the English speaking world the United Kingdom - is on a par with California - and with the UK population of 61 million - will according to the House Builders Feederation there only get in about 50,000 new residential units in during 2009. The Government is more optimistic - "hoping" for a paltry 100,000 units.

There should be a replacement build rate of 2 to 3 units annually / 1000 population - and then supply for new household formation.

This is why the focus for politicians must be to "allow" people to build affordable housing on the fringes - as fast as possible.

There is no other alternative.

Hugh Pavletich

Kieran,

".....Comparing Houston with California is like comparing invercargill with Auckland. Wait untill the bubble has fully burst in NZ then you will see the true picture...."

California is leaking population, Houston is gaining faster than anywhere else, yet their house prices remain affordable. There is no comparison between Houston and Invercargill - yet. If Invercargill or any other region positioned themselves as the pro-development, go-ahead region, they too would gain at the expense of the anti-development regions just as Texas has been gaining at the expense of California.

But you seem to agree that we have a bubble in NZ and the results of it bursting will be interesting. But I cannot understand the attitudes of you and so many others on these threads, to the land supply racket. As I said earlier:

As for the constraints of hilly and watery surroundings, why, then, is there any justification for authorities making it even more difficult and expensive to develop and build new homes? Compare the price that land-banking developers pay for farmland beyond the artificially imposed urban limits, and the price they can get for the same land when it is rezoned for residential use. The difference is an unnecessary cost imposition on every final buyer of the new homes and an inflator of the whole market.

Not that the land banking developers are to be blamed for any perceived lack of ethics. They take frightful risks with huge amounts of capital over long periods of time. The temptation and the potential for corruption between them and local authority staff is enormous.

I personally resent the "let them eat cake" attitudes towards the young and first home buyers, that prices them out of home ownership and/or locks them into excessive mortgage or rent slavery, all because, as Hugh is pointing out, they have to pay well into six figures for the patch of dirt that any house sits on, when the low five figures would be perfectly possible looking at overseas experience and at the cost of farmland here in NZ. And all because there is a racket running on land supply that is similar to OPEC's tactics with the supply of oil.

I do wonder whether some commenters are even reading Hugh's works and the Demographia reports and all the other things he links to.

Kieran tells me:

"......In case you haven't noticed America has also suffered a housing bubble as has every other country I can think of, is it because they all have bad urban planning and a undersupply of housing? No, the real reason is because property became the number 1 investment for all the babyboomers nearing retirement on 2 fulltime incomes at the peak of their earning potentia.....".

Having actually read all the Demographia reports, and a lot of other detail on this subject, I have to say Hugh's case is unanswerable. "America" hasn't suffered a housing bubble, States and regions within America have suffered housing bubbles and there is a strong correlation between the size of the various bubbles and the land supply regulation. The affordability index and the rate of the bubble in the USA as a whole, have been dragged down by the great majority of affordable States. If California was a country on its own, it would now be following Iceland and Latvia and Hungary into the hands of the IMF, thanks to their development-killing politics and its various consequences, of which the housing bubble is the pinnacle.

I also suspect that some commenters here have vested interests in keeping land prices high; no, that is a much too weak way to put it; the stench is obvious hundreds of kilometers away.

Philbest, invercargill is cheaper than auckland because people would rather live in auckland and are prepared to pay a premium for that privellage, the same as california. Houston wasn't immune to the bubble either, its all comparitive why doesen't everybody in california just move to houston then?

I want to see affordable housing available and a correct supply of new housing also, but not more large family houses on large sections on fringe land. not because I want to save rural land or stop urban growth but because this is not the type of housing thats going to be needed in the future we already have enough of this type of housing to meet future demand.

I am saying we have a housing affordability problem because of the "Investment bubble" The cause of the bubble was the spiral of ever inreasing demand for high capital gains, normal market supply and demand dinamics don't operate during bubbles.

Hugh thinks lack of supply is the cause of the bubble ie not enough new houses being built = higher prices but all the facts and data show that over the last 10 years we have actually had an oversupply of new housing (your opec example doesen't make sense)

I have read hughs demographia reports and other articals and they are very handy in pointing out unaffordability and for comparing other cities/countries, but his solution does not take future population growth or composition into account and will only increase prices because when all the babyboomers retire they will want/need to live closer to town in flats/townhouses/appartments etc... and there won't be enough of this type of housing available for them.

I am not a babyboomer so I do not have a vested interest, its actually in my best interest if hugh is succesfull in increasing the numbers of larger stand alone houses in the friges(I will be buying one for me and my family to live in when prices have stopped falling, I sold my first home in 2006 and have been renting since because I new the bubble was going to pop eventually) the bigger the fall the better.

Housing supply is not the issue investment demand, bad lending and monetry policy is.

THIS graph is very informative:

http://www.newgeography.com/content/00500-case-shiller-index-housing-pri...

My own personal experience aligns with these theories.
Recently moved from a house in Glendowie remote from shops, and on a pretty average bus route
moved to Remuera, 5 mins walk to a new world, 7 minutes walk to train station
We've dumped our second car, making on average about 3 car trips per day compared to about 8 before
I'm sure our carbon footprint has shrunk dramatically, plus its also great economically