Deep in the heart of Texas, the housing market is hot, but is it hot enough for big builders? Witness Houston—the No. 1 market on BIG BUILDER'S 2006 list of the hottest markets for new housing in America—pushing last year's top place holders, Phoenix and Atlanta, out of the way.
No surprise there, according to James Diffley, group managing director of U.S. Regional Services for Global Insight, who ranked the top 100 housing markets for BIG BUILDER for the third year in a row. “The big thing is that Texas has reasserted itself as a growth center,” Diffley says.
Oil helps and so does affordability, not to mention jobs and the domestic and international in-migration of people to the Lone Star state. It is ironic that the relocation of thousands of New Orleans residents to Houston in the wake of one of the worst hurricanes in U.S. history spurred growth, too. In March, the Texas Workforce Commission revised Houston's employment statistics substantially upward, indicating that job growth was about twice the pace the agency had previously reported. Riding the wave of a good economy and a strong energy sector, Houston is expected to gain nearly 79,000 jobs this year, growth that translates into twice the national rate.
“The economy is good, but not better than other parts of the country,” he says. “It's an inexpensive city to build housing in because land is cheap. And Houston benefits more than other cities in the incredible increase in the cost of oil.”
Nevertheless, the city's economic strength helped push Atlanta and Phoenix out of the way in the housing sweepstakes. Atlanta took the No. 2 spot after facing a midyear slump with losses in manufacturing and weakness in transportation, trade, and professional/business services. That included the bankruptcy of Delta Air Lines, which has its home base in Atlanta, and the closing of four military bases in Georgia, following the Base Realignment and Closing (BRAC) Commission's recommendations. While the housing market continued to boom, a rapid expansion in the supply of housing kept appreciation low, according to Global Insight.
Phoenix dropped to No. 7 from first place in BIG BUILDER'S latest housing tally, but predictions are looking up for 2006. Trade, transportation, and utilities added 15,400 new jobs between November 2004 and November 2005 in Phoenix, an increase of 4.5 percent. But job growth is expected to be moderate in the next five years, according to Global Insight.
“Affordability is a big problem in Phoenix. Income hasn't kept up with prices,” says Dennis McGill, analyst with Credit Suisse.
Bernie Glieberman, CEO of Crosswinds Communities, a building and development company in nine states, says, “Most economists are reading the Phoenix market and not taking into account that the oversupply is very temporary.”
Meanwhile, it comes as no surprise to analysts that four Texas regions are on the top-10 hot list. In addition to Houston, they include Dallas/Fort Worth/Arlington, No. 3; McAllen/Edinburg/Mission, No. 8; and Austin/Round Rock, No. 9. All have the benefit of good growth around the fringes of a metropolitan area.