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ECONOMY AT A GLANCE – THE RECOVERY
Houston weathered the recession better than most metro areas. The downturn was short and shallow and the region began recouping its job losses sooner than most. Houston has now recovered more than two-thirds of the jobs it lost in the recession. Of the nation’s 20 most populous metros, only Washington, D.C. is further along in the recovery.
Houston fared better for a variety of reasons:
Houston’s economy will continue to grow in 2011, adding more jobs in ’11 than in ’10. By December, Houston will have replaced many of the jobs lost during the recession and be closer to a full recovery. Growth will be fueled by the ongoing U.S. recovery, growth in the developing world, a weak U.S. dollar and rising oil prices. However, several factors will temper that growth – the drilling moratorium in the Gulf of Mexico, weak natural gas prices, a soft real estate market, and government budget woes.
For Houston, the recovery began in April ’09, the first month the Houston Purchasing Managers Index registered an uptick after trending downward for more than a year. Two months later, the North American rotary rig count rebounded. Passenger traffic at the Houston Airport System picked up in August 2010. Cargo shipments through the Houston-Galveston Customs District began to improve in November 2010. Employment, a lagging indicator, began to grow again in February 2010.
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As of the first quarter 2011, Houston’s average family income was $70,273 (based on 2011 inflation-adjusted dollars) compared to the U.S. median of $72,957. Houston’s more affluent households are scattered throughout the metropolitan area. Households with annual incomes of $100,000 or more are concentrated in north Harris County, west Harris County along the Katy Freeway, and southeast Harris County along the shores of Galveston Bay. Among the nine counties in the Houston-Baytown-Sugar Land MSA, Fort Bend County, which includes the Sugar Land area, has the highest median household income, followed by Montgomery County. |
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SINGLE FAMILY HOUSING: Single-Family home sales don’t appear to have impacted Houston’s overall apartment demand performance much during 2010 as a whole. Home prices in Houston haven’t slumped far enough to create the bargains apparent in some other location. According to the National Association of realtors, the median sales price for an existing home in Houston as of 3rd Quarter 2010 stood at $158,900, below the U.S. median of $177,900. In recent months, builders have picked up the pace of single-family housing starts across Houston, but to only levels that remain low by longer-term historic standards. Building permits were issued for 22,560 single-family homes in the Houston area during the 12-month period ending in November. That figure was up 6 percent from the year-earlier level and registered as the biggest tally seen anywhere in the country, outpacing the sum in #2 ranked Dallas by a margin of more than two to one.
MULTI-FAMILY HOUSING: Dwindling construction volumes and an improved economic outlook are just some of the key trends that should help occupancy get better and push rents upward. MPF Research forecasts Houston’s apartment absorption rate in 2011 at 11,700 units. Influencing this outlook, leading economists are predicting that the metro should gain 70,000 to 80,000 jobs, and the metro will continue to offer renters a wide selection of desirable apartments at attractive prices. The forecast assumes that loss of renters to home purchase will move upward pretty meaningfully in Houston over the course of the next year, but, even with that variable built into the outlook, there is the possibility of the market underperforming expectations due to home sales accelerating more rapidly than is anticipated.
Houston’s apartment absorption outlook translates to continued strong lease-up rates for the recent and still oncoming completions as well as considerable backfilling of the sizable vacancies in the market’s middle-tier and bottom-end product (B, C and D product). The forecast well surpasses the 1,161 units scheduled for delivery during 2011, with this block of new supply coming in as Houston’s smallest annual construction volume in more than two decades. The deliveries scheduled for Houston in the coming year will expand the metro’s large inventory base by a slight 0.2 percent (a reserved rate compared to the 2.2 percent annual growth pace averaged during the past five years.) IN SUMMARY With Houston’s forecast apartment demand during calendar 2011 outpacing scheduled completions considerably, a substantive increase in occupancy is expected. Occupancy as of December 2011, is expected to land 2 points above the late 2010 level, with this figure registering as the biggest annual increase the metro has seen since 2nd quarter 2006. All of Houston’s neighborhoods are projected to record an increase in occupancy between late 2010 and late 2011. The notable increase in occupancy anticipated in Houston’s apartment market in 2011 should help owners and operators push rents upward. MPF Research expects rental rates to rise by 2.9 percent during the coming year, with this annual growth pace registering as the biggest since 3rd quarter 2008. Combining the shifts in occupancy and rents projected for Houston between December 2010 and December 2011, apartment revenues should grow by approximately 4.9 percent, the biggest annual revenue bump since 2nd quarter 2006.
Disclaimer: The information contained in this document contains material from sources deemed to be reliable. However, KET Enterprises Incorporated does not warrant the validity of same.
Sources: Jack L. Hughey & Associates Grubb & Ellis 2009 Real Estate Forecast O’Connor & Associates The Greater Houston Partnership Dr. Barton Smith: The Institute for Regional Forecasting Hendricks & Partners Live Oak Capital Marcus & Millichap Federal Reserve Bank of Dallas – Economic Research Publications MPF Research Texas A&M Real Estate Center
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