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Sunday, December 20, 2015

Lawler: "Yes, Houston will have a problem next year"

by Calculated Risk on 12/20/2015 01:17:00 PM

Some thoughts on the Houston housing market from housing economist Tom Lawler:

Earlier this week I sent out a message with a link to the Houston Association of Realtors report showing that MLS-based home sales in the Houston metro market showed a double digit YOY decline for the second straight month in November, and that total property listings were up by over 20% from a year earlier.

Here are some other “macro” numbers (in table or graph form) for the Houston metro area.

Non-farm payroll employment, YOY growth, November 2014 – November 2015, Not Seasonally Adjusted (released this morning for Texas/Houston)

Year-over-year Employment Growth
  USHoustonRest of
  Mining and Logging-13.5%-4.9%-12.4%
  Education and Health2.9%4.2%4.1%
  Leisure and Hospitality3.0%6.7%3.8%
  Other Private Services2.1%-0.3%2.4%
Total Less L&H1.7%0.2%1.5%
Total Less L&H and Govt2.0%-0.3%1.7%

Houston Employment

Houston was one of the fastest growing large MSAs in terms of both population growth and employment growth from 2011 to 2014. Over the 12-month period ending in November, however, employment growth was quite anemic in Houston, and excluding the Leisure & Hospitality Sector (which has lower than average hourly wages and lower than average hours worked per week) employment was virtually unchanged from a year ago.

Unemployment rate (Not Seasonally Adjusted)

Unemployment rate (Not Seasonally Adjusted)
Rest of Texas4.53%4.46%

Houston Unemployment Rate

Despite a sharp slowdown in employment growth, the CPS-based unemployment rate for Houston actually declined somewhat in the first half of this year, which seemed “odd.” Since then, however, the unemployment rate has risen sharply, and Houston’s unemployment rate is now higher than the national average for the first time since 2006.

Single-Family Building Permits

Houston Single Family Permits

*2015, SAAR through October

Reflecting the relatively strong population and employment growth, Housing SF building permits recovered by a substantially greater amount than the nation as a whole in the current recovery, and in 2013 and 2014 builders often described the market as “red-hot.” Permits in Houston have slowed a bit this year compared to last year, but have not slowed as much as one might have hoped given the sharp deceleration in employment growth, as well as dim prospects for employment growth next year.

Home Prices

Houston Single Family Permits

Reflecting strong demand relative to the rest of the nation, Houston home price growth has considerably outpaced the national average over the past few years.

CR Note: This graph shows the Year-over-year (YoY) change in the Freddie Mac House Price Index (HPI) for both Houston and the U.S..

Oil Prices

Houston Single Family Permits

Oil prices continued to fall in December.


Houston’s economy has not yet fully adjusted to the decline in oil prices, and especially the slide in the past few months. There is a pretty good chance that Houston will see negative employment growth next year, along with a rise in its unemployment rate to above 6%. This environment, combined with the lack of any meaningful reduction in housing production to date, suggests that (1) housing production in the Houston MSA should decline significantly next year; and (2) overall home prices should fall as well.