Executive Summary

Posted: January 4th, 2023

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Executive Summary

The analysis pays considerable attention to the residential market in Huston, and analyses various factors that could influence the construction, buying, and renting of residential units. Even though some areas experience reduced employment rates, the increased employment witnessed in particular areas presents a good chance for local residents to purchase, build, or rent residential houses. The promising economy of the U.S. and that of Texas is another show that more people are likely to demand for residential units and the supply is also expected to grow. The increasing population of Huston is likely to create a situation where more people need residential homes, and this may foster more construction. The developers of residential units need to watch out for other factors that could influence the development of residential houses in Huston such that the individual income level, the household median income, the poverty rate, and the level of education. The growing business cycle index may also be of significance when developing residential houses in the city because it offers guidance on whether more people will demand dwelling places or not. The developers as well as home owners need to consider the laws and regulations put in place to guide the construction of residential houses to avoid adverse consequences. The best time for developers to exploit the market is when the economy is stable and the poverty level is not likely to prevent many residents from buying or renting a house. A stable economy stabilizes the household and individual income, which will enable buyers to purchase or rent residential places. Buyers may also take advantage at a time when their income rate is stable and the economy is not dwindling to buy or rent a residential house.

Residential Market Analysis – Huston City

Demographics and Market Inventory

Several factors at the state and the national level could prompt people to acquire residential houses in Huston. One of the factors that could encourage people to acquire more residential units is the level of employment in the city is growing, thereby giving consumers the power to purchase or rent houses where they can reside. A report by the Federal Reserve Bank of Dallas shows how the job sector grew by 2.3% three months to August 2019 with the construction sector hiring more people (more 6,500 residents joining the area). It is highly likely that the increased job security will boost the residents’ ability to either purchase, build, or rent residential houses.

Real Wealth Network

Not all sectors in Huston record improved employment rate and this could significantly affect the buyers’ capacity to acquire or rent residential houses. The Federal Reserve Bank of Dallas raises fears that that the rate of unemployment in Huston City that increased from 3.50% in June to 3.75% in July could interfere with many people’s ability to secure residential houses. Nationally, some key areas have recorded significant increase in the rate of unemployment, which could further derail people’s ability to acquire or rent residential apartments. The manufacturing sector alone, for example, lost at least 1500 jobs starting March to July 2019 (Federal Reserve Bank of Dallas). Certainly, the increased unemployment rate in the manufacturing sector will create a scenario where the prices of raw materials and other vital commodities go high thereby affecting the rates of residential units. Employment forecast for the next several years suggests that the unemployment rate is likely to persist with the projection set to have adverse effects on the acquisition of residential units (Federal Reserve Bank of Dallas). The investors and all stakeholders in the residential market should pay much focus on the issues that could tamper with the ability to build, purchase, or rent residential units and come up with effective measures on how to address the situation.

The U.S. economy as well as that of Huston shows a promising outlook, which could influence people’s ability to get residential units. Economic projections paint a promising image of the future U.S. economy, with economists forecasting that the country’s gross domestic product (GDP) will make positive growth of 2% to 3% over the next five years (Assanie 16). The people planning to acquire or rent residential houses or already reside in an apartment should rely on the idea that the rate of unemployment is anticipated to fall within the normal rates taking into account that the U.S. is neither experiencing a serious inflation or a deflation that could cause much effect. It is also encouraging President Trump is dedicated to bolster economic growth with the national leader hoping to achieve a 4% annual growth rate (Assanie 17). Another factor that could place some hope to people seeking to acquire or rent residential homes is Texas where Huston belongs enjoys the status of the second strongest economy in America after California (Perryman 21). The strong economy in the state is set to encourage more people to secure residential units where they can reside with their families.

The increased population in Texas and Huston is set to increase the demand for residential units in Huston and the entire state. A report by the City of Huston indicates that Texas is perceived as one of the American states that develops very fast with Harris County ranked as the fastest growing developing county across the whole state. Huston’s population today is about 7 million with another about 700,000 people living within the city’s territory (City of Huston). The high population evidently shows more people are likely to be in need of residential houses with the area expected to witness steady growth over the next few years. Today, Huston has more traffic than ever further signaling an upsurge in the number of residents in the city. More people are attracted to Huston because of the low cost of living, as well as the appealing business environment which are expected to improve population and employment in the next two decades (City of Huston). Predictions indicate that the population of Huston is anticipated to grow by about 24% to about 2.8 people come 2034. The same projections by the City of Huston show that the number of people residing within the city’s territorial areas could surpass more than 870,000 people by 2034, a situation that is likely to increase the demand for residential houses. It is vital, therefore, for both developers and home owners to consider how the population upsurge could influence the supply and demand for homes.

Real Wealth Network

The developers for residential units need to understand how the individual income rate could influence the supply and demand for houses city. Even as the number of residents searching for a home they can afford continues to increase in Huston, several factors such as income, the location of a person’s job, and the ability to own a car or not could prevent some people from residing in areas that they find appropriate (Formby et al.). Local leaders already recognize the challenges many resident in Huston face in affording residential units and are increasingly giving suggestions on how to offer affordable housing. The inability by many people to own a home in Huston results in a housing tenure system whereby tenants submit a given a amount of money to the landlord every month as payment for the residential house or apartment, a plan that proves to be costly for some renters. As a result only the people who get higher income have the ability to purchase or build a home compared to individuals who get low income and have no option but to utilize a substantial portion of their income to settle their rental fee. Being conversant with the dynamics surrounding individual income could help stakeholders make appropriate decisions regarding the sale and buying or renting of residential units.

Also important is to know the household median income as well as the poverty rate in Huston as this could help players in the real estate sector to come up with suitable decisions regarding investing in residential houses. The yearly household income in Huston as of 2019 according to the City of Huston is about $50,890, which is lower compared to the national annual household income of $60,337 (City of Huston). The average household income in the U.S. was about $47,790 in 2016, thereby showing an annual growth of 6.47%. The idea that male employees get nearly 1.5 times more than their female counterparts, at an average of $65,834, while females get $47,182 per year indicates that more male workers are more likely to afford residential homes than women (City of Huston). Crucial information that could help the developers of residential homes in Huston is the city’s poverty rate is 21.14% with the females and males scoring 23.24% and 19.05% respectively. Individuals who do not work at all record the highest number of poverty level with the group scoring 31.02% followed by people who work only for a limited period of time (23.81%) (City of Huston). Those who work full time record the lowest levels (5.70%) thereby being in a relatively stable position to acquire or rent residential houses (City of Huston). The demographic analysis in Huston shows that more Whites are less likely to experience poverty (8.82%) compared to people from other races (27.42%), which indicates that the latter group may not be in a good position to either purchase or rent residential houses (Buxton 23). Knowing the rates could be of significant importance to stakeholders who get to know the spending power and determine with ease the groups that are likely to either acquire or rent residential houses with ease or some difficulty.

The level of education could be of paramount importance when making decisions on whether to buy, build, or rent a residential home. About 22.70% of the residents in Huston have graduated from high school, while those with a Bachelor’s degree account for nearly 19.30% of the entire population (City of Houston). The individuals who have attended some college in Huston contribute about 18.26% while those who have attained below the 9^th grade form 12.96%. The people with graduate degree in Huston account for 12.40%, those who reached between 9^th to 12^th grade recording 9.15% and those with an associate degree forming 5.13% (City of Huston). Often the individuals with higher academic levels get higher-paying jobs, and the escalating income rates will increase the urge to either purchase or buy a residential house. People with low education, on the other hand, are likely to get low income, which could drive them to rent relatively cheaper houses.

Knowing the business cycle index could be of significant importance to developers of residential units. The business cycle index at the national level grew 5.5% over the last three months of 2019, but a downward regression in employment for Q1 2019 made the index to fall drastically to 3.2% per annum (Federal Reserve Bank of Dallas). The 3.2% rate is regarded as being higher than it was in the past, but remains significantly lower than the 5.6% year-to-date rate after including data through July (Federal Reserve Bank of Dallas). The escalating business cycle index in Huston is a positive indicator for developers of residential units, and restores hope that more people are likely to need dwelling places now and in the future.

The business cycle index in Huston – Federal Reserve Bank of Dallas

The groups seeking to develop residential houses in Huston need to adhere to the legislations put in place to guide construction; otherwise, they could experience some legal hurdles that may be difficult to address. It is essential to adhere to the directives of the Minimum Property Standards set by the City of Houston Housing & Community Development Department (City of Houston). The guidelines offer directives for construction, building, rehabilitative activities, and maintenance of residential houses that benefit from federal assistance through the Department as stipulated by 24CFR 200.925 (City of Houston). The Minimum Property Standards give the directives for proper health and sanitation. Furthermore, the 24CFR 92.251requires that houses constructed through the assistance of HOME or CDBG funds attain all the applicable rehabilitation and ordinance directives at the time of finishing the construction work (City of Houston). Adhering to the laws and regulations that define the construction of residential units will protect both developers and home owners from financial loss they could incur while battling legal cases, and may also prevent other adverse effects that could occur due to failure to observe the rules.

Supply and Demand Analysis

The rental sector experienced significant growth over the past recent years with more people needing residential houses. The leases for houses for single families escalate 11.3% per annum, while the leases for townhomes and condominium increased 19.1% with the rental fees for both also pushing upwards (Kezar). The tenants in single-family houses pay as much as $1,875 every month, thereby marking a 1.6% increase, while the rent for tenants in townhomes and condos increased to $1,775, thus marking a 5.8% increase. Tenants in the Q1 of 2019 occupied another 10,010 houses in Huston, overtaking occupation in the whole of 2019 (U.S. Department of Housing and Urban Development and Hayek et al. 320). It also happens that the occupancy rate for rental houses hit 90.2% by the mid-2019 in comparison with the 89.4% recorded at the start of the year. It happens that the increasing need for rental houses in the city follows the growth in the local economy, building of houses, and the reduced interest rates (Torres et al. 13).

Type of residential houses	Lease rates (p.a)
Single family homes	11.3%
Townhomes and condominium	19.1%

Evaluating the prices of houses in Huston reveals there is small growth in the price of accommodation. The average price for a residential home in Huston was around $241,000 in July 2019, and it appears that the prices have dropped slightly from 2015. The other factor that prompted the fall of prices of residential homes is the Hurricane Harvey. The beginning of 2019 saw an increase in the demand for residential homes, especially due to the fall in mortgage rates (U.S. Department of Housing and Urban Development). Furthermore, the home inventory available for purchase holds around steadily below five months since the beginning of 2016. Since the past years, an inventory level below six months is related to a market where both sellers and purchasers enjoy sameness, while inventory below the level is linked with increasing prices. Evaluators project that the trend could translate to diminished need for housing over the long term if it persists. Furthermore, the need for housing has increased over the years regardless of the recent escalation in residential houses. Generally, the prices of single-family homes escalated 2.7% over the past year to reach 8,348 in mid-2019, while the total number of sold properties reached 9,950, a 3.3% upsurge.

Recommendations

The evaluation presents vital insight that could help to come up with effective decisions regarding investing in residential homes. The developers of residential houses based on the evaluation need to approach buyers at a time when the employment rate is strong because it is during such a time that more people will be in a good position to purchase or rent a house. It may also be suitable to enter the market at a time when the economy is stable because it is during such a time that more consumers will be able to purchase or rent (Gaines et al.). The developers of residential houses may consider developing housing that meet the needs of the buyers who belong to different socioeconomic classes and may not be in the same position to buy or rent a house. The developers, for example, may develop relatively costly houses in areas where more people are educated and have higher-earning jobs that could allow them purchase or rent houses (Gaines et al.). The constructors may build relatively larger houses in such locations as opposed to places where the poverty rate is high and more people have jobs that do not earn them high income. Renters may also consider purchasing or renting when the mortgage interest rates are low, and when the level of poverty is not threatening. It may be necessary, however, to adhere to the legislations that define construction of residential houses to avoid legal repercussions that could have adverse consequences (Gaines et al.). Failing to observe the legislations could cause a scenario where the developers build substandard houses, or where the sanitation system is not developed in accordance with the required standards.

Conclusion

The analysis pays considerable attention to some of the factors that could influence the demand and supply of residential units in Huston. It emerges that the promising employment sector as well as the strong economy in Texas and all over the U.S. could give more people the chance to build, purchase, or rent residential houses. The developers need to consider several factors such as the poverty rates, the level of education, as well as the median income because these factors play vital roles in determining consumers’ ability to acquire residential homes. It is encouraging that the demand for residential houses is increasing despite the recent increase in prices. Developers need to exploit the market at a time when the employment rate is strong, and when the economy is recording steady growth. The developers of residential houses also need to consider markets where buyers have the ability to purchase because of their high income or low poverty rate.

Works Cited

Assanie, Laila. “Texas Housing Market Soars to new Highs, Pricing out many.” Southwest Economy, vol. 1, 2017, pp. 15-18.

Buxton. Retail Leakage and Surplus Analysis. North Richard Hills, 2018.

City of Houston. “Welcome to Houston.” City of Houston, 2019. www.houstontx.gov/. Accessed on 27 November 2019.

Federal Reserve Bank of Dallas. “Houston Economic Indicators.” Federal Reserve Bank of Dallas, 2019. www.dallasfed.org/research/indicators/hou.aspx. Accessed on 27 November 2019.

Gaines, James et al. “Texas Housing Insight.” Real Estate Center, October 4, 2019. www.recenter.tamu.edu/articles/technical-report/Texas-Housing-Insight. Accessed on 28 October 2019.

Hayek, Faul et al. “The Condominium Conversion Problem: Causes and Solutions.” Duke Law Journal, vol. 306, 1980, pp. 306-335.

Kezar, Korri. “Study shows Dallas’ Rental Market has Balanced Supply, Demand.” Dallas Business Journal, April 2, 2018. www.bizjournals.com/dallas/news/2018/04/02/study-dallas-rental-market-has-balanced-supply.html. Accessed on 27 November 2019.

Perryman, Ray. The Texas Economy: Past Performance and Future Expectations. Today’s CPA, 2019.

Real Wealth Network. “Huston Real Estate Market Overview.” Real Wealth Network, 2019. https://www.realwealthnetwork.com/markets/houston-texas/. Accessed on 28 November 2019.

Torres, Luis et al. Outlook for the Texas Economy. Real Estate Center, 2019.

U.S. Department of Housing and Urban Development. “U.S. Department of Housing and Urban Development.” U.S. Department of Housing and Urban Development, 2019. www.huduser.gov/portal/home.html. Accessed on 28 October 2019.