If you're crying in your beer about the condition of the market in your neck of the woods, look no further than Texas for evidence it didn't have to be this way.
There's no downturn in our national economy. Job growth is still strong. But housing markets are now in the doldrums in much of the country. And yet, many Texas builders are selling houses as fast as they can build them. Why?
Consultant and GIANTS columnist John Burns offers some insight. He reports Houston, with 54,364 single-family building permits pulled in the last 12 months, and Dallas, with 32,151, are both operating at 100 percent of peak single-family production.
Burns also rates markets on a "housing cycle barometer" based on their history of housing affordability. A score of 0 means home prices are more affordable than ever; 10 is more expensive than ever. No market in Texas has a score above 5. Houston, for example, is at 5, and Houstonians spend an average of 27 percent of household income on housing. Compare that to Naples, Fla., with a housing cycle barometer score of 9 — after three years with home prices increasing more than 30 percent annually.
Florida builders and many others pushed prices to unsustainable levels recently, driven by a feeding frenzy of housing investors. Texans are more lucky than smart; they never saw the investors and so had no opportunity to push prices. Texas markets have razor-thin margins, which is probably why the speculators steered clear as they moved from California and Nevada to Florida and the Northeast. But if you're selling houses in Florida today, I'll bet you'd rather be in Texas.
Burns points out that Texas' economy is driven by oil, construction and the flight from Hurricane Katrina, and housing investors are only now beginning to show up. When the investors bailed out of housing last fall, they left many markets in chaos, with excess inventory that panicked builders into deep price discounts. Today, in those markets, potential buyers are sitting on their checkbooks because they no longer know what a fair price looks like. It may take more than selling off excess inventory to bring them back. No one wants to pay too much on the highest-ticket item of all: a house.
A month or so ago, a Florida builder asked me what he could do to bring the investors back. I replied, "Why would you want to do that?"
Is it possible some builders still don't see how much damage selling to investors can do by overheating the market and driving prices sky high? You lose all those margin gains when the market tanks. Over the years, Californians learned from cruel experience to avoid selling to people who don't plan to live in a house. It's not easy. Sales agents have to recognize investors and screen them out. Builders can also use a variety of contract clauses to discourage flipping. Remember that the next time investors show up.
This downturn didn't have to happen. If you don't believe it, take a trip to Texas and watch them build houses.
941/371-4804, e-mail: bill.lurz@reedbusiness.com
