Economists, industry insiders predict local housing shortage

Economists, industry insiders predict local housing shortage

By Robert Bell Friday, 20 March 2009

Ask anyone who has paid attention to the news for more than five minutes how they think things are going, and you will likely get an earful about layoffs and bailouts, bankruptcies and foreclosures. Ask why, and the answer would probably make its way back to the housing industry.

While the Central Texas housing market of 2009 is not necessarily booming, it is certainly better off than many comparable regions around the country. New home starts fell sharply in 2008, but compared to Las Vegas, Miami and many parts of California, the Austin market is faring pretty well.

Some economists, analysts and real estate insiders have even predicted a housing shortage in the region in three to five years. For those looking to buy a house at that time, a shortage could mean higher prices or waiting for new homes to come online.

A shortage would likely arise because of a decline in new home starts combined with a steady influx of new residents who are attracted to the region’s relative economic stability.

“I would say Austin is probably the best market in the nation,” said Mark Sprague, partner with Residential Strategies, Inc., a research and consulting firm that tracks new home construction.

“We have limited supply, we have good employment. We still have positive employment growth. Compared to everyone else in the nation, we’re in a great place,” Sprague said.

Economist Angelos Angelou, principal executive officer of Austin-based AngelouEconomics, is predicting a shortage in the near future.

Many national homebuilders are in dire financial straits because of their operations in troubled areas such as California, Nevada and Florida.

“My fear is that national developers may have overreacted and Austin may be penalized in the form of lower home starts, which eventually can create an artificial shortage,” Angelou said.

Bill Hinckley is president of Houston-based Lookout Partners LP, which developed the Crystal Falls subdivision in Leander and is also in the planning stages of another large development on the west side of the city.

“I think we’re going to have to work through the economic malaise that we have out there, but there are a number of reasons that are pointing to [a shortage],” Hinckley said.

Starts

In Leander, there were 396 building permits issued in 2008, down from 987 in 2007 and 1,258 in 2006. Cedar Park saw new home starts drop to 590 in 2008, down from 868 in 2007 and 1,138 in 2006.

Housing starts are down across the metro area. A healthy rate is about 11,000 starts across the region, Angelou said.

“Three years ago we were building new homes at a rate of about 18,000 a year, and last year we only built 8,100 housing units,” he said. “This year we anticipate even lower — 6,000 or so units. That’s not enough. Obviously, business conditions dictate that only so many units are being built because the credit markets are frozen and it’s very difficult to qualify people for loans for housing today.”

Eldon Rude, Austin market manager for real estate research firm MetroStudy, doesn’t anticipate a shortage so much as a period of increasing home prices while builders work to meet the rising demand.

“We will probably be in a situation where we have less available new-home inventory than would probably be adequate to meet the immediate surge in demand that will come from relocations to the area for new jobs,” Rude said.

Buyers

Right now, for most of the metro area, it is a buyer’s market.

“I would not even think of selling a house until two years from now, at least,” Angelou said. “And if you’re buying, now is the best opportunity to buy. I wouldn’t wait for the market to go down any further necessarily because the minute it goes down further and the credit market is unfrozen, then a lot of people are going to jump in it.”

Hinckley offered a similar assessment, citing low interest rates and relatively low land and material prices.

“There is never a better time to buy a house, in our lifetime, than right now,” he said. “And there never will be.”

Christy Gessler, a Realtor with RE/MAX Capital City who serves on the board of directors for the Williamson County Association of Realtors, said she is off to her best start ever in 2009.

While some lenders are seeking more detailed information from borrowers, she said she has not encountered any problems closing loans in the last eight months.

“If buyers are coming here with solid income, solid credit scores, are responsible with their money and have available down payment money, they’re going to have a very good selection of homes,” Gessler said.

Her assessment of the effects of a shortage in the region echoed Rude’s in that the main result would be a slight increase in prices while builders catch up to the demand.

Builders

Times might be good for homebuyers, but regarding the climate for homebuilders, Hinckley painted a different picture.

“Horrible, horrible, horrible,” he said. “If you don’t have cash or if you don’t have loans in place, you are going to have real trouble getting something banked right now.”

However, builders that do the majority of their business in Texas will be better off in the long run and will be in a position to move once credit starts flowing again, he said.

But many builders are still apprehensive about the near future, said Harry Savio, executive vice president of the Homebuilders Association of Greater Austin.

“The question every employer is asking is, ‘Have I cut back enough? Do I need to cut back more, or is this mini-boom coming and I need to be geared up and ready to hit that?’” Savio said.

Both Hinckley and Savio said the future of the homebuilding business would include a move back to the basics.

At the height of the housing boom, many of the national homebuilders had morphed into builder-developer hybrids.

When sales of lots and spec homes slowed to a crawl, the pain really set in.

“Raw land eats three meals a day,” Hinckley said. “If all you’re doing is building houses and things slow down, you just quit building houses. But if you own 10,000 acres of land in Florida, what do you do? It’s still eating and you ain’t selling.”

Hinckley predicts the housing market will return to normal in about five years.

“Leander will be in the crosshairs of all the growth, and things will be fine in five years.”

Bankruptcy protection process

Homebuilding is not the only industry suffering setbacks during the credit crisis. The Austin division of the U.S. Bankruptcy Court’s Western District of Texas, which encompasses Williamson County, reported 224 bankruptcy filings in January, a 34 percent increase above January 2008 figures. Depending on the nature of the financial situation, debt-burdened individuals and corporations have three major avenues for repaying creditors.

• Chapter 7 — Liquidation bankruptcy
  • Available to: Individuals, partnerships, corporations
  • Process: The debtor’s property and assets are sold off to repay creditors. Certain types of property can be exempted from liquidation, including homestead property and land, essential business equipment and basic necessities such as food and clothing.
• Chapter 11 — Reorganization bankruptcy
  • Available to: Individuals, partnerships, corporations
  • Process: The debtor, usually a corporation, continues to operate a business, working with courts and creditors to establish a payment plan while restructuring financial operations. Debtors attempt to recover outstanding assets by terminating contracts, liquidating property and calling in debt.
• Chapter 13 — Wage earner’s plan
  • Available to: Individuals
  • Process: The debtor sets up a payment plan that must be completed within a given time frame, usually three to five years, overseen by a third-party administrator. Meanwhile, creditors must cease collection efforts and halt any pending foreclosure proceedings.