Job Growth Keeps Houston Housing Market Strong

Frontier Centre, Housing Affordability, Uncategorized, Worth A Look

Home builder Will Holder has a lot to be happy about these days.

Houston’s housing market has remained healthy while other cities have slowed. And the longtime builder was recently promoted to president of Houston-based Trendmaker Homes, which builds high-end homes with an average sale price of $385,000.

Trendmaker has built about 750 homes a year in Houston-area master-planned communities over the last few years and plans the same amount in 2007.

Holder spoke with reporter Nancy Sarnoff about Houston’s unique property market and how it’s changing.

Q: Why is the housing market here doing better than other big cities?

A: The slowdown is not happening because there’s job growth here. And price drops are not occurring because Houston home prices have been able to inflate only slightly above the cost of construction. I’ve been building here for 25 years, and this market has always been a pure cost-plus market. There are very thin margins in Houston.

Q: So what kind of environment does that create for builders and buyers?

A: It’s really not as profitable a market as other markets in the country. The business operates off return on investment, which means how much total money you have at work in the marketplace relative to the profit you are able to make from that money. The return on investment earned in Houston has always been only slightly above the cost of capital. It’s only high enough to attract capital; it’s not high enough to be extraordinary. I think in some of these markets where they have a constrained supply, the pricing strategy has recently been whatever the market will bear, but it has never been that way in Houston.

You can see that Houston is the most affordable metro area in the entire country. It’s a result of it being a supply-rich market. The real plus for home buyers is not just the affordability, but it’s created a highly competitive home product. What you get in a home is quite lavish in Houston relative to other cities. You get an all brick home with granite countertops and very elegant finish features and you get a lot of square footage. If you go to another market you might end up with vinyl floors, Formica countertops, features that if you put them in Houston, you would fail. It would be noncompetitive.

Q: Local economist Barton Smith recently said that Houston builders are putting up too many new homes. Do you think overbuilding is a problem?

A: I think it may be at certain price points. It’s certainly more pervasive at the lower price point. Low interest rates relative to the cost of rentals attracted a lot of people. But it could easily correct itself. As a seller, I’ve always felt like there’s too much supply even in our price point, and buyers may see the inverse. Buyers have enormous choices. That is healthy and it’s OK. We operate in Houston right at the edge. If I hadn’t been here for so long I would be worried about it. But if you live at the edge year in and year out, you realize the edge is OK.

Q: How is the Internet changing your business?

A: Buyers use the Internet extensively in their new-home search. We’ve seen the traffic in our sales office go down when the sales go up. That’s because buyers shop on the Internet and just go to the places they want to buy. They come in and know exactly what you’re selling. They have floor plans printed out. They have a price list in their hands. By the time we see them face to face, they’re 50 percent into their shopping cycle. What we do on our Web site now is critical to our success. We’ve actually seen nearly a doubling of our Web site traffic in two years. It has to be robust with info. Some used to say, “don’t give them prices; make them come in and ask.” Now that would be nuts. You have to give them information. Literally, if we have it, we put it on the Web site.

Q: How do you plan to grow your business?

A: The way we will grow will be through new and varied products like townhomes, patio homes and new homes that meet different needs. If you don’t change your product every six months, you start to lose. It’s a rapidly changing product. It’s like clothing. If you didn’t change the style
of your home every year, you’d be out of style.