Market Spotlight: Texas
“Affordable housing” has become something of an oxymoron in many parts of the country over the past several years, but not so in the Lone Star State. While home prices in California and Florida were doubling and tripling, the median price of a home in Texas has been trundling along at an appreciation rate in the single-digit percentages. This means Texan homeowners haven’t been treated to the same instant wealth in the form of home equity that homeowners in other states have been, but it also means housing in Texas is weathering the current market correction much better than its highfalutin’ counterparts in previously so-called “hot” housing markets. New-home sales in Texas are off their 2005 peaks, but the drop is not as large as it is in many other markets (Dallas-Fort Worth net sales, for example, are off about 8%), and consequently the rise in inventory has not been as dramatic.
Texas remains an attractive migration destination for Americans seeking affordable housing that may even come on a lot that’s larger than a postage stamp. For builders, however, lower prices tend to mean lower margins. This is a significant conundrum facing regional or national builders who are examining new market areas for potential expansion: Florida or California have lucrative margins but bring increased risk, as many builders have discovered in recent months; Texas will have a thinner profit margin but tends to be safe and steady.
While Texas is sure to remain a questionable expansion proposition for builders in search of a healthy market that provides healthy profit margins, for Americans seeking affordable housing and acreage it is an attractive option. Even though property taxes and sales taxes are above average in Texas, this is offset by the absence of any state-levied personal income tax, making the cost of living quite affordable compared with many East and West Coast markets.
For suppliers, distributors, and manufacturers, Texas is a huge marketplace that cannot be ignored. According to the U.S. Housing Markets Flash Report published by Hanley Wood Market Intelligence, the state leads the nation in single-family permit issuance, with nearly 132,000 single-family permits issued in the first nine months of 2006, and more than 170,000 total permits, including multifamily, which ranks the Lone Star State second only to Florida. The power may shift in 2007, with Florida permit issuance expected to continue to contract in coming months. In particular, as many as a third of all permits issued in Texas next year could be in the Dallas-Fort Worth metropolitan area, sure to be one of the leading metro areas in the nation in terms of construction activity. Who’s up for a rodeo?
–Jonathan Dienhart
