The leading expert on the regional economics of the Houston metropolitan area is Dr. Barton Smith, University of Houston professor of economics and director of the UH Institute for Regional Forecasting. This Chronicle article reports on Dr. Smith’s latest report on the local housing market that he gives a couple of times a year to the Houston real estate business community.
In short, Dr. Smith believes that rising interest rates aren’t a good trend, but that the city should escape the serious housing bust that is looming in other markets. Inasmuch as the difference between income levels and home values in Houston is not as wide as it is in some other cities, Dr. Smith believes that smaller difference should help the local housing market relative to other markets. However, Dr. Smith predicts that, by 2006, many regions will experience a harsh housing market correction where home prices will begin to fall.
While rising interest rates are not good for home sales, Dr. Smith believes they will have a more positive impact on one more troubled sector of the local housing market: apartments. Vacancies in Houston area apartments have increased as renters have abandoned their apartments in favor of buying homes at historically low interest rates. However, Dr. Smith reasons, once rates go back up, consumers won’t be in such a hurry to buy homes, creating more demand for apartments.
Nevertheless, due to overbuilding over the past several years, Dr. Smith predicts that it will take at least a year before the local apartment industry records any significant occupancy gains. With occupancy at 86.5 percent and nearly 15,000 units expected to be delivered in 2004, Smith gave the same advice yesterday that he gave to local developers in the early 1980’s immediately before the that decade’s bust in energy prices: “Stop building.”
Aside from the apartment industry, Dr. Smith was more bullish on other commercial sectors of the regional economy. He noted that the local office market had bottomed out and will improve this year. In general, the retail market appears healthy, but Dr. Smith observed that much of the new retail is simply diluting sales of older stores. Barring any unforeseen events (i.e., terrorist attacks), Dr. Smith predicted that the regional economy will continue to improve, and Houston could see 30,000 to 50,000 new jobs this year.Consequently, Dr. Smith overall was quite optimistic about the regional economy in his remarks on Thursday.
Dr. Smith reiterated his previous predictions that gentrification will increase in Houston’s inner core, and that substantial growth will continue in the city’s suburban areas. Dr. Smith predicted that the currently under construction Grand Parkway (Houston’s third and outermost “loop” outside of the existing 610 Loop and the outer Beltway loop) will be congested by 2025. To help alleviate congestion and environmental problems, Dr. Smith encouraged developers to build master-planned employment centers –such as The Woodlands in north Houston — that locate large amounts of workers in a single area near suburban employment centers and that have good access to the other metro area employment centers.