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Economist forecasts best years ahead for Houston housing market

Low Cost Housing Project

Despite the oil slump, Houston’s housing market faces its best years yet.

Mark Dotzour, former chief economist for Texas A&M University’s Real Estate Center, shared this message to hundreds of developers, homebuilders and contractors gathered for the Greater Houston Builders Association’s midyear economic forecast on 24 May 2016.

Houston’s economy — particularly its housing market — has remained surprisingly resilient, even as energy companies declare bankruptcies, cut thousands of jobs and shut down rigs, Dotzour said.

“It’s stunning, astonishing, astounding,” Dotzour said. “It’s amazing how resilient the housing market is in Houston when you’re in the middle of a root canal.”

Unlike previous economic downturns, Houston’s single-family housing market is not overbuilt. Houston posted a 3.6-month home inventory in April, still well below the 6-month mark, which indicates a healthy, balanced market, Dotzour said.

“There aren’t enough homes for sale in this town. Our inventory is real low,” Dotzour said. “That’s the beauty of this cycle. Usually, we are way overbuilt, but we’re not way overbuilt at all. There’s no massive overbuilding.”

Dotzour predicts a bull market for housing both locally and nationally over the next five to 10 years. That’s because single-family home construction nationwide hasn’t fully recovered from the Great Recession. And once Millennials jump into the housing market in droves, demand for single-family homes will skyrocket, Dotzour said.

“These Millennials aren’t going to be riding a bike with their helmets for the rest of their lives,” Dotzour said.

Still, Dotzour said he didn’t want to downplay the challenges facing Houston homebuilders, particularly those working in the luxury home market. He estimates new homes sales may fall as much as 10 percent over the coming year.

“If you’re selling houses to people who are wealthy — homes $800,000 and north of that — those customers will be more reticent,” Dotzour said. “The outlook for moderately priced homes is strong. The bottom half of the market, those people are just getting on the dance floor.”

Houston homebuilders won’t have to worry about mortgage interest rates rising in the near term, Dotzour said. Although the Federal Reserve is looking at raising interest rates, inflation is the key factor influencing mortgage interest rates, he said.

However, homebuilders should keep a pulse on buyer mentality as economic uncertainties from the oil slump and a possible national recession looms on the horizon, Dotzour said. Homebuyers are heavily influenced by how they feel about the economy. If they feel uncertain about the economy, they’re less apt to buy a home.

Dotzour recommends Houston homebuilders be careful about biting off more projects than they can chew. But he urged builders to keep building homes, or else home prices will spike because of Houston’s low supply of homes.

“We’re getting into the late innings (of the recovery),” Dotzour said. “Don’t take on more debt. When you get this late, survival is the goal.”

Dotzour believes 2016 will be the most difficult year facing Houston. However, Houston’s countercyclical economy and its diversity will help the Bayou City weather the energy downturn, he said. Homebuilders in particular are poised to come out of the downturn strong, he added.

“This is the most painful point right now,” Dotzour said. “It’s going to hurt for a while. But this year, 2016, is going to be peak difficulty. This is as tough as it gets.”

Source: Paul Takahashi Reporter Houston Business Journal

3 things to watch in Houston’s retail scene in 2017

Retail Project

With 2016 having gone down as an overall strong year for the retail sector in Houston’s commercial real estate scene, things are looking relatively positive for 2017. Some of the defining trends of 2016’s retail market as well as new challenges are worth paying attention to in 2017.

How retailers adapt to inner Loop challenges

Retail dominates the suburbs through big-box shopping centers and mixed-use developments such as CityCentre, the new Imperial Market development in Sugar Land and the Baybrook Mall expansion. But retail inside the Loop is undergoing a transformative moment. Retailers are going vertical, as evidenced by Midway Cos.’ recently announced Buffalo Heights project, which will be anchored by a multilevel store by San Antonio-based H-E-B Grocery Co.

Meanwhile, Houston can expect more adaptive reuse in retail as developers work to find locations in an increasingly dense inner Loop. For example, work is underway to turn a former warehouse property into a new community-focused mixed-use project called EaDo Workspaces in East Downtown.

“Urban retail is hot,” Jazz Hamilton, first vice president with CBRE’s retail brokerage services group in Houston, told the Houston Business Journal. “Reusing and the refurbishing of warehouse space – that’s hot right now. And retail going vertical is not just hot, but it’s like you’re forced to go vertical.”

  1. The closing of brick-and-mortar stores

Last year claimed a lot of big box retailers such as Sports Authority, Aeropostale, Golfsmith and, most recently, the Limited. As more and more Americans opt to skip the lines at brick-and-mortar stores in favor of shopping online, this will be something to keep an eye on. About eight out of 10 Americans are now online shoppers — 79 percent have made an online purchase of any type and 51 percent have bought something using a smartphone, according to a December survey of U.S. adults from the Pew Research Center.

Meanwhile, Cincinnati-based retail giant Macy’s Inc. announced Jan. 4 that it will close 68 of its 870 stores and streamline its management. Three of the stores are in Houston: in Greenspoint Mall, West Oaks Mall and Pasadena Town Square.

  1. Can downtown become a destination?

Urban planners are wrapping up years-long projects that aim to establish downtown Houston as a destination for locals as well as visitors. Many of these projects were planned long before Houston was selected to host the 2017 Super Bowl.

Downtown’s convention center district has been revamped and renamed as part of a $175 million makeover that started in 2014. Urban planning entities rebranded the area enclosed by the convention center, Discovery Green, the new Marriott Marquis and the Hilton Americas as “Avenida Houston” rather than the convention district. The street that separates the convention center from Discovery Green, Avenida de las Americas, has been confined to two lanes from eight in a move that made way for what is being dubbed restaurant row. Grotto from Landry’s, Bud’s Pitmaster BBQ, McAlister’s Deli, Pappadeaux Seafood Kitchen and Kulture from the owners of the Breakfast Klub will all open in that space.

Meanwhile, six new restaurants, including a highly anticipated new concept called Xochi from Hugo Ortega, will open inside the Marriott Marquis.

However, whether Houstonians will frequent these restaurants is anyone’s guess.

“Downtown Houston is not the tourist destination like New York, Chicago or Philly. It’s different,” Hamilton said. “Houstonians are still not thrilled about driving to downtown and paying to park. (Retailers) are still catering to the business traveler that’s down there because of their office space or a conference center.”

Source: Cara Smith and Emily Wilkinson Houston Business Journal

Big city, tiny homes: New homes, home sites shrink in Houston amid oil slump, changing demographics

Low Cost Housing Project

Houston has the second-largest homes in the country, with a median size of 1,900 square feet, according to 24/7 Wall St. However, new homes and home sites are shrinking in the Bayou City. Amid the oil slump, changing demographics and concerns about affordability, homebuilders are rethinking the conventional wisdom of “bigger is better,” experts said.

Production homebuilders, who in the past didn’t want to offer anything below 1,800 square feet, are now introducing 1,500-square-foot homes in Houston. And developers are introducing smaller lot sizes to accommodate these smaller, patio-style homes.

“We’re definitely seeing some interest in smaller homes and lots to make homes more affordable,” said Lawrence Dean, Houston regional director at Metrostudy, a national housing research firm.

Oil slump

Much of the trend toward smaller, “patio-style” homes in Houston has been fueled by the oil slump, Dean said.

As crude oil prices crashed from more than $100 a barrel in 2014 to around $50 a barrel in 2016, Houston’s housing market has slowed.

In particular, luxury homes — often large homes on large lots — have lost their luster. However, sales of starter and so-called “move-up” homes priced between $150,000 to $500,000 have increased by about 10 percent year-over-year, according to the Houston Association of Realtors.

Patio homes on these smaller lots are selling, according to local housing experts.

In fact, most of the home starts and closings over the past 12 months have been smaller homes sitting on 50-foot lots. About 7,200 homes built on 50-foot lots were sold in Houston over the past year — nearly three times the sales of homes built on 70- and 80-foot lots, according to Metrostudy.

Inner-city townhomes and far suburban entry-level homes are selling the fastest, said Scott Davis, Meyers Research’s senior vice president overseeing Houston. Homes on lots that are 65-feet or larger aren’t selling as quickly, Davis added.

As a result, land developers and homebuilders are now looking to build more affordable homes — which means smaller homes on smaller lots priced between $225,000 and $280,000, Dean said.

Everyone’s trying to get back into the sub-$300,000 price point,” Dean said. “That’s the sweet spot.”

Lot shift

To accommodate an affordable price point, residential developers are shifting their land mix to accommodate smaller home lots. Some developers are looking to replat, or reconfigure, their tracts to fit smaller home lots instead of large home lots, said Steve Spillette, president of Community Development Strategies, a Houston-based real estate research firm.

“Homes between $200,000 and $350,000 are still very much in demand,” Spillette said. “That market is still quite strong.”

Over the past six months, the majority of land developers in Houston have begun to shift their home lot program, Dean said.

Developers are building fewer homes on larger 80-, 90- and 100-foot lots, and often discounting prices on these larger, 70-plus-foot lots, particularly on the west side of Houston.

The average price for a 70- or 80-foot lot in northwest Houston fell between $3,000 and $4,000 between January and July, according to Community Development Strategies’ most recent report. In southwest Houston, the average price for a 70- or 80-foot lot fell as much as $10,000 during the same time frame.

The lower prices for these large lots is reflective of the low oil prices’ effect on the upstream energy sector, Spillette said.

“Demand for expensive homes on large lots is softer, so you’re seeing some price decreases,” Spillette said.

Some developers have tabled plans to build large homes on large lots in their master-planned communities.

Newland Communities opened its latest Houston master-planned community, Elyson, in October with its largest home sites capped at 70 feet. The San Diego-based developer, which plans to build 6,000 homes at its new Katy community, had initially planned to add larger homes on larger lots, but decided against it during the oil slump.

“We decided with the market the way it is not to go with the super large lots right now,” said Heather Gustafson, Newland Communities’ marketing director. “We will do that in the future when the market can bear that.”

Rise of Patio Homes

Instead of building McMansions on large home lots, Houston homebuilders are building patio homes on smaller 50-, 55- and 60-foot lots, and adding a 45-foot lot to their lot mix.

“Nearly all of the master-planned communities in Houston will have a 45-foot program rolled out in 2017,” Dean said.

As a result, the median lot size in Houston will likely shrink 5 to 10 feet to about 50-foot lots, Dean said.

Patio homes on small lots are nothing new in Houston, Dean said. During the housing bubble, thousands of starter homes were built on 45-foot lots to cater to subprime homebuyers. However, after the housing crash of 2008, many homebuilders soured on these small homes and, instead, built large homes for well-heeled oil and gas workers during the energy boom.

Developers and homebuilders are focusing again on patio homes amid the oil slump. However, instead of building cheap homes for unqualified borrowers, homebuilders and developers are keen to build homes with good value, Dean said.

“Developers are very, very focused on trying to get smaller lots in their communities while still maintaining the development quality,” Dean said.

Demographic shift

Houston’s changing demographics is further fueling the shift toward patio homes. As Millennials begin to start families, many young adults — born between the mid-1980s and late 1990s — are looking for patio-style homes and smaller yards that are easier to maintain. However, they still want the same high-quality homes, student dorms and apartments that they are accustomed to, Davis said.

“Millennials expect the same high level of finish they had at their homes growing up,” Davis said.

At the same time, Baby Boomers — those born in the aftermath of World War II — are looking for affordable and appealing homes, Dean said. These empty-nesters want to downsize, but not downgrade the quality of their homes, he said.

“While Baby Boomers want to financially capture their home equity to retire, they don’t want a home that has no frills,” Dean said.

Homebuilders

Several homebuilders are offering patio homes on smaller lots throughout Houston, including Chesmar Homes, CalAtlantic Homes, Perry Homes and Pulte Homes, Dean said.

Sitterle Homes, which expanded to Houston in 2012, has largely focused on one product: luxury “garden” homes. About 95 percent of the homes that Sitterle builds in Houston are these garden-style homes that are one to one-and-a-half stories tall, spanning 1,600 to 3,000 square feet on 50-, 55- and 60-foot lots. Prices range from the $320,000 to $400,000.

“That’s our niche,” said Steve Von Hofe, partner and Houston division president of Sitterle Homes.

Von Hofe realized there is a demand for smaller, patio homes in Houston as Baby Boomers begin to retire en masse. Many of these empty-nesters are now looking to downsize from their large suburban homes into smaller homes in familiar neighborhoods, Von Hofe said.

“They don’t want the size of the home, but they still want the luxury amenities,” Von Hofe said. “That’s our secret sauce.”

Urban homebuilders are also turning to smaller homes.

Live Oak, a Houston-based homebuilder, is offering two new “efficiency” floor plans at Live Oak Landing, a 70-home community at 1806 Upland Drive in the Spring Branch area.

The smaller homes, which span about 1,125 square feet and start from $289,000, will feature the same exterior and interior finishes as its larger counterparts in the community, but will be built on a smaller footprint. Live Oak plans to deliver its first homes with the efficiency floor plan this spring.

The new efficiency plans will likely cater to young singles who want to live near the Energy Corridor and CityCentre, as well as empty-nesters looking for an easier-to-maintain home a short drive to the Memorial area, said Mark Coerver, a co-founder of Live Oak.

“In a slower market, we’ve seen a flight to affordability,” said Coerver. “I just think there’s a desire for smaller units that are more affordable. We think we’re going to hit a gold mine.”

Big Idea: S hipping container homes hit Houston

Jerry Hartless came up with the idea when he was working in the Middle East in 2008.

The Houston native had a commercial contract with the U.S. military, installing internet service for 65,000 soldiers in Afghanistan and Iraq. As part of his operations, Hartless had miles of cable wire and hundreds of routers shipped from Asia to the Middle East in large shipping containers.

The lack of housing in the desert was a problem for Hartless and his team. So, Hartless created his own man camp — complete with rooms, toilets, showers and kitchens — out of empty shipping containers.

When Hartless returned to Houston, he launched Build A Box Homes in 2013. The Houston-based homebuilder is one of the first homebuilders in the region to use shipping containers to build homes.

“I was doing this before it was cool,” Hartless said. “We just wanted to do something different, something cool and green.”

Build A Box Homes recently put its first shipping container home on the market. The home — 1709 Dan Street, a few blocks north of Interstate 10 in the Greater Fifth Ward — is made out of two 40-foot shipping containers sandwiched between a wooden front porch and back patio. Click here to see a slideshow of the container home.

The 1,280-square-foot home features two bedrooms, two bathrooms, a modern open kitchen with granite countertops and stainless steel appliances, and wood floors throughout. Although the exterior showcases a blue-painted shipping container, the interior features traditional drywall and polyurethane spray insulation, making residents feel like they’re in a regular single-family home, Hartless said.

The Build A Box Home, which hit the market about two months ago, is listed for $174,995 on HAR.com.

Although a shipping container home costs about the same to build as a traditional wooden stick-frame home, Hartless says these metal homes are easier to maintain.

“You don’t have to replace the roof or the siding,” Hartless said. “And no termites.”

Homes and retail centers made out of shipping containers have become more popular in recent years as budget- and earth-conscious homebuyers and shoppers look for more sustainable ways to live and shop.

“I think people have a lot of interest in them,” Hartless said. “It’s cool, trendy and eco-friendly.”

Source: Paul Takahashi Reporter Houston Business Journal

Houston homebuilder debuts $160,000 home inside Beltway 8

Low Cost Housing Project

New homes aren’t cheap these days. Amid rising costs for land, construction materials and labor, the price of a new Houston home has skyrocketed in recent years. Today, the average price of a single-family home in the Bayou City tops $280,000. Many Houston homebuyers have to drive to the far exurbs to buy a new home priced less than $200,000.

However, Plantation Homes is bucking the trend by introducing one- and two-story home plans priced from the $160,000s. The Dallas- and Houston-based homebuilder is under construction on a new model home, located in Northwest Park Colony, near State Highway 249 inside Beltway 8. The community is a few miles south of Willowbrook Mall and the Sam Houston Race Park.

These more affordable homes will be Plantation Homes’ least expensive homes in the Houston market. Prior to these new homes, Plantation Homes’ lowest price point was a home on a 50-foot lot in The Meadows at Imperial Oaks in Conroe, which started from the $210,000s.

Plantation Homes is offering nine floor plans, ranging in size from 1,425 to 2,592 square feet, that will sit on smaller 45-foot lots. The traditional Texas-style brick homes feature oak-accented cabinets, kitchen islands with work centers and energy-efficient infrastructure — all backed by a two-year limited warranty as well as a 10-year structural warranty.

Several Houston homebuilders are introducing smaller homes on smaller lots to bring home prices down below $400,000, where the most homes are selling amid the oil slump.

Toll Brothers Inc. (NYSE: TOL) recently announced a new product line called T Select, which features homes from 2,800 to 3,500 square feet on 60- and 65-foot lots and start from the upper $300,000s.

Similarly, Magnolia-based luxury homebuilder Gracepoint Homes recently told HBJ the company began offering smaller, but high-quality, homes to target “the strike zone below $450,000.”

Source: Paul Takahashi Reporter Houston Business Journal

NATIONAL, REGIONAL OR LOCAL — WHICH BUILDER IS RIGHT FOR YOU?

Low Cost Housing Project

Buyers looking at newly built homes typically choose a community and a price range, followed by a particular lot and a model.

If you’re fortunate enough to live in an area with an abundance of choices for newly built homes, you may be wondering whether it’s advantageous to opt for a home built by a larger national builder, a medium-sized builder who works in your region or a smaller local or custom builder. Realtors who work with buyers and builders of every size say that while there are differences in their clients’ experiences depending on the builder, there are advantages offered by every type of company.

“I call them Papa Bear, Mama Bear and Baby Bear — for the big national builders, the regional builders and the local builders,” says Elizabeth Lucchesi, a Realtor with McEnearney Associates in Alexandria, Va. “Each one of these builders has a big incentive to provide excellent customer service.”

Representatives of the large builders often have their bonuses weighted according to customer satisfaction surveys, so they do their best to make sure every part of the customer experience is as good as possible, says Lucchesi. Regional and local builders are aware that a great reputation is crucial to their continued success, so they, too, handle everything with integrity.

“It’s important to set buyers’ expectations for the experience of building a new home and how much communication they’ll receive,” says Jennifer Lewis, a Realtor with Papasan Properties Group with Keller Williams Realty in Austin, Texas. “Both big and smaller builders can do a good job at that. The bigger builders have systems in place and a process they follow with every home and the regional and local builders are good at personalized communication.”

Large national builders are structured to provide excellent performance and smaller builders have the incentive of having even more to lose if one customer isn’t satisfied, says Andrea Pietrinferno, an associate broker with Long & Foster Real Estate in Cherry Hill, N.J.

Here are some topics to consider if you’re weighing the advantages of working with a smaller or larger builder:

Locations and Lots

“Most buyers are concerned about resale value and a lot of that depends on location,” says Pietrinferno. “Bigger builders have the capital on hand to buy more lots and in the best locations. Local builders have to work hard to get great locations and to finance them, but they also can design specific homes that work well for that location and that market that they know so well.”

Choices

“The number of choices available for personalization is more a function of the price point than the size of the builder,” says Lewis.

Some national builders offer semi-custom homes with a multitude of choices, while others stick to an “A,” “B” or “C” option for buyers to choose between. Regional and local builders are similarly diverse in their level of options.

Larger builders are more likely to have a design center where you can make your selections, but smaller builders can usually allow you to see your options on display in a model home or recently completed homes.

Regional builders often have a good sense of local design trends and will display them in their models, says Lewis.

“National builders are designed for performance with a team of people to bring the best product they can bring to buyers,” says Pietrinferno. “These companies have a massive amount of information at their fingertips about cutting-edge products and techniques and trends.”

Change Orders

Change orders can be problematic once construction has begun, but if you think you’re likely to want to make a lot of adjustments to your choices during the building phase, a smaller builder might have an easier time accommodating you, says Lucchesi.

“A bigger builder may be a little stricter about when they’ll stop making changes to your home,” says Pietrinferno.

Customer Service

Smaller builders have an intense interest in personalized customer service, says Lucchesi, while about 75 percent of the larger national and regional builders have a service person on site to take care of their customers.

“The personal attention you get is as good as the person who gives it to you,” says Pietrinferno. “The experience will be different with a national builder who has a person whose job is to take care of the final punch list compared to a small builder who does his own punch list, but either way, you’re likely to get taken care of.”

Pricing

“Prices depend most of all on your location and client desires rather than on the size of the builder,” says Lucchesi. “Bigger builders have an advantage in that they can buy in bulk and sometimes they have the ability to offer an incentive, such as a free finished recreation room, depending on the phase of development. But in the end, regional and local builders need to stay competitive, and pricing is part of that.”

After all, Pietrinferno says, “every builder, no matter how large or how small, ultimately has the customer’s best interests at heart because they want their customers to be happy and to give them good referrals.”

Souce: By Michele Lerner