Oil prices heat up Houston housing market

HOUSTON, TX, United States (UPI) -- Home prices in the Houston-area were up last year for the first time in four years.

The median price per square foot for a home rose 3.8 percent last year, after rising less than 1 percent in 2004, The Houston Chronicle reported.

Real estate agents and economists attribute the improved market to strong job growth thanks to the climb in oil prices.

The overall price increase was well below the 13 percent rise nationally in the median home price, but Houston`s slower pace may help the market avoid the sort of slowdown already seen in cities that registered tremendous gains in recent years, the newspaper said.

'We were never hot,' said Ted Jones, senior vice president and chief economist for Houston-based Stewart Title. 'What we have is a very dynamic market that`s not hot and not cold. We`re just right.'

The median price in Houston for 2005 was $70.04 per square foot, which would mean a 2,000-square-foot house would cost $140,080.

Copyright 2006 by United Press International

Five Questions With Real Estate Market "Professor"

4/23/2006 5:52:00 PM
By HoustonRealNews Market Analyst

HoustonRealNews asked Five Questions to Donald Jud, PhD. and Professor Emeritus at the University of North Carolina Greensboro on behalf of Houston real estate investors. We found his research on the risks associated with an individual property versus the risk of the property market on a national level enlightening. In that paper, co-authored by Stephen Roulac (PhD) and Daniel Winkler (PhD), Dr. Jud studied two specific markets in his research - his hometown of Greensboro and Houston.

1) Given your research comparing Houston to the national market, can you summarize the risk characteristics to an investor of only buying Houston single-family residences?

The risk of buying only one house is high in Houston and elsewhere is high. My research looked at 92,485 repeat sales of residential property in Houston during 1989-2004. The average annual capital gain return was 4.8 percent, but 68 percent of the home sellers earned a return that ranged from -0.6 to 10.2 percent. A total of 9.1 percent of the sellers sold at a loss, that is, for less than they paid for their property.

2) Investors in rapidly appreciating markets seemed to make money no matter what they bought, as long as they bought (markets such as Las Vegas , Phoenix and Boston in the first half of this decade). What factors should real estate investors look for to find the "best" deals in a market where everything is a "deal"?

My research shows that housing returns are higher:

1) when housing prices nationally are rising; 2) in communities where local employment is growing most rapidly; 3) for older homes; 4) for larger homes; and 5) for homes that are not atypical of the local area.

The risk of homeownership is lower for those buyers who stay in their homes longer before trying to resell. The risk of buying and then trying to resell quickly is very high.

3) How much do you believe that high carrying costs, such as higher than average taxes (3% +) and property insurance affect the value of Houston property?

My research and that of many others has shown that higher taxes and property insurance rates are capitalized in lower housing values. Housing values are always higher in places that have high quality public services and low taxes. The quality of local public schools is one of the most important public services affecting housing values.

4) What do you surmise is the influence of levels of immigration (all immigration - legal and illegal) on property values?

Immigration usually results in higher population and employment growth, both of which have been shown to raise housing demand and housing prices.

5) What advice would you give to investors in Houston single family real estate to hedge their risk?

Don't buy if you think you may need to resell quickly. Homeowners who live in their home can usually survive any market downturn. And while living in their home they earn the imputed rental value of the home, which is a tax-free return. For most homeowners this amounts to a 3 to 4 percent tax-free return after expenses, about the same yield as tax-free municipal bonds.

Some house owners may have more home than they need. This group may consider downsizing their housing investment.

Housing speculators, who buy with high leverage, using adjustable-rate mortgages and planning to resell quickly, face the highest risk. If the market slows and their house is vacant or if they are unable to rent at a rate that covers the mortgage payment, such investors may face default.