Patrick Carr Properties

'Good time' to buy a home

Researcher sees low area prices despite fall in construction

By NANCY SARNOFF

Copyright 2008 Houston Chronicle

Home construction in 2008 is expected to fall for the second year in a row, but consumers aren't likely to see prices this low for years to come, according to Metrostudy, a housing research and construction firm.

"The irony is, with all the scary stuff that's going on, it's a really good time to be a home buyer," said Metrostudy president Mike Inselmann, who spoke Monday at the Greater Houston Builders Association's forecast luncheon.

Developers are expected to build about 35,000 homes, down more than 11 percent from the 39,500 constructed in 2007.

Most of the drop in construction will be in those properties priced below $175,000. That segment of the market, which includes so-called "starter homes" for first-time buyers, has felt the brunt of the downturn from the fall-off in subprime lending aimed at borrowers with spotty credit histories.

Houston in better shape

Still, Houston is in much better shape than other parts of the country where home prices soared rapidly and then fell just as dramatically, said Inselmann.

Houston's availability of land and relatively lenient building controls kept home prices from spiking artificially, which, in places like California and Florida, attracted investors who fled once prices fell.

The down housing market is a result of "a mismanaged mortgage industry" that made loans to unqualified borrowers who couldn't keep up with their payments and went into default, Inselmann said.

While Houston-area home sales are expected to be slow again this year, prices should rise slightly, which will help keep a lid on foreclosures, said economist Jim Gaines of the Real Estate Center at Texas A&M University.

The higher end of the housing market has remained strong, picking up some slack in the lower end and boosting prices.

Single-family home prices have appreciated 4.7 percent in the year ending in November, Inselmann said, citing data from the Office of Federal Housing Enterprise Oversight.

Still, a decline in new home construction is likely to affect the local economy, but to what extent remains unclear, Gaines said.

So far, construction employment in the area hasn't changed much, likely due to a strong commercial building sector and immigrant workers who don't show up in employment data.

But last year's 21 percent drop in housing starts could hit Houston's economy by the middle of this year, because of a lag time of six to 18 months, Gaines said.

Top ranks for Texas

While the local market has taken a blow, with new home closings — or final sales — falling 11 percent last year, the outlook is still brighter than other parts of the country, analysts and builders said.

Texas is the top-ranked state in the nation for job growth and single-family home starts and sales, Inselmann said.

And the resale market, expected to post its second-best year on record, was down about 3 percent at the end of November, according to the Houston Association of Realtors.

"With energy prices where they are, I think it's safe to say that Houston is in a different economic situation than the rest of the country," said Mike Moody of Newmark Homes.

While new jobs in 2008 may amount to just half of the 100,000 created in 2006 through the 12 months ending in October, they will still stimulate demand for new homes, Inselmann said.

If the price of oil stays above $80 a barrel and the nation doesn't go into a recession, the local housing market could bottom out this year, he said.

Demand will regain strength as more federal lending programs take the place of some of the subprime loans that are no longer available.

For now, builders are cutting back their construction plans until supply and demand become more balanced.

Deep discounts

Some builders are offering discounts of up to $40,000, as well as decorator allowances and other perks to unload their unsold inventory, said Jim Holcomb of Holcomb Properties, a subdivision developer.

"There are tremendous values on housing right now that probably won't be seen this time next year," he said.

That is if the national economy holds up.

"The big variable here is going to be a recession and whether or not we have one," said Gaines. "It might be 2010 before we start seeing much improvement."

nancy.sarnoff@chron.com

Nancy Newhard
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