Impact of Hurricane Harvey - The Houston...

Presented by:

David Jarvis

5909 West Loop South Suite 590

Bellaire, Texas, 77401

(713) 906-3829

[email protected]

Impact of Hurricane Harvey

Trusted Analysis for Executive Decisions

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Our Proprietary 5-Step Process to a Profitable Project1 . D E M O G R A P H I C T R E N D S

Our Proprietary 5-Step Process to a Profitable Project

The 4 Big

Influencers

During 5 Main

Life Stages

Help Answer 6

Key Consumer

Questions

1. Childhood

2. Early Career

3. Family

Formation

4. Late Career

5. Retirement

1. Government

Policies

2. Economic

Cycles

3. Technology

Advances

4. Societal Shifts

1.How many will there be

and how much money will

they have?

2.What will they purchase?

3.When will they purchase?

4.Where will they

live/spend?

5.Who will buy and who will

they live with?

6.Why will they buy certain

products and not others?

History Lesson #1 – Labor Costs Will RiseR O L L I N G 1 2 M O N T H G R O W T H I N W A G E S & S A L A R I E S P E R C O N S T R U C T I O N

W O R K E R , M I S S I S S I P P I

Source: John Burns Real Estate Consulting, LLC

History Lesson #1 – Labor Costs Will RiseN E W H O M E C O N S T R U C T I O N C O S T S W I L L R I S E F O R S E V E R A L Y E A R S


• Government regulation and oversight will likely increase, making home

construction more expensive. After three major floods in less than three

years, most Houstonians no longer believe flooding is a once in a life time

event.

• Labor costs will rise. 8 of the 14 builders we spoke with last week expect

new home permits to decline for the balance of the year, primarily due to

short supply of labor. All expected labor prices to continue increasing.

Construction worker compensation rose 14% in Mississippi after Hurricane

Katrina. Our clients in Dallas expect to lose workers to Houston as well.

• Land prices likely to remain stable. The shortage of land in good locations

will likely continue to keep land prices high.

• Construction volumes will be higher than forecasted in 2018 and later. It

took about 5 years after Hurricane Katrina to rebuild the housing stock in

Harrison and Hancock counties.

History Lesson #2 – 5+ Years of Rebuilding For Areas

Hardest HitH U R R I C A N E K AT R I N A I M PA C T O N H O U S I N G S T O C K : H A R R I S O N A N D

H A N C O C K C O U N T I E S , M S


112,460

91,253

107,049

90,000

95,000

100,000

105,000

110,000

115,000

2005 - Before Katrina 2006 -After Katrina 2010 -5 Years After Katrina

Hurricane Katrina Impact on Housing Stock:Harrison and Hancock Counties MS

-19% Loss of Housing Units

5 Years of Rebuilding

History Lesson #3 – Short Term Pain Immediately After

Storm, Followed by ‘Catch-Up’ in Construction VolumeN E W H O U S I N G P E R M I T S : G U L F P O R T - B I L O X I - PA S C A G O U L A , M S


History Lesson #4 – Resale Home Prices Take a 1-Year

Hit After a FloodM E D I A N R E S A L E H O M E S A L E S P R I C E S - % C H A N G E Y O Y


Flood Plan from 1940s - Houston

Summary


• Prior to the hurricane, many new home sellers and apartment landlords were offering incentives to buyers and renters due to a slowly growing economy and an overbuilding of expensive apartments.

• With housing vacancy certain to decline, we expect the incentives to diminish.

• It will be a long time before Houston returns to normal.

• We believe new home construction will fall in the short term, but rise in the long term. New home prices will have to go up because costs will go up.

• We believe Houstonians will work hard to rebuild the region we love.

Questions?

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Forecast

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John Burns Real Estate Consulting

Depth and Breadth of Experience

David Jarvis, SVP(713) 906-3829

[email protected]

LOCAL & NATIONAL FOOTPRINT

October 2017 | THEC Houston Housing Post-Harvey

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IMPACT OF HURRICANE HARVEY



REVIEW OF 9 SIGNIFICANT FLOODS IN HOUSTON

• March 1992

• October 1994

• October 1998

• November 1998

• June 2001 (TS Allison)

• December 2005

• April 2008

• May 2015 (Memorial Day Flood)

• April 2016 (Tax Day Flood).



AVERAGE SALES RECOVERY: 6 MONTHS

85%

90%

95%

100%

105%

110%

115%

120%

125%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

% o

f F

oo

d M

onth

Sa

les

Months

Months to Sales Recovery, Major Floods

Mar-92 Oct-94 Oct-98 Nov-98 Allison

Oct-05 Apr-09 Tax Day Memorial Day



NEW CONSTRUCTION ON AVG RECOVERS IN 3 MONTHS

85%

90%

95%

100%

105%

110%

115%

120%

125%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

% o

f F

lood

Mo

nth

Sa

les

Months

Months to Permit Recovery, Major FloodsMar-92 Oct-94 Oct-98

Nov-98 Allison Oct-05

Apr-09 Tax Day Memorial Day



RECOVERY TO PRE-FLOOD LIKELY MARCH/APRIL 18

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 2 4 6 8 10 12 14

% o

f C

ases R

ecovere

d

Months to Recovery

Harvey Recovery ScenariosPermits Pricing Sales

70% probability of

recovery 6-8 months



WHAT DID WE MISS FROM HARVEY

Sales were lower by 100+ per day vs 2016 the week after the storm; by the following week sales were above 2016 levels.

Source: Meyers Research analysis of data from HAR MLS

7 8 9

20

16

20

17

Mo Tu We Th Fr Sa Su Mo Tu We Th Fr Sa Su Mo Tu We Th Fr Sa Su

-6

-4

-2

-6

-4

-2

Week of Month

50

100

150

Sales

Daily Sales

July-August-September Sales



MONTHLY SALES TIME SERIES DECOMPOSITION600

1000

1400

data

-300

-100

100

seasonal

800

1100

1400

trend

-300

-100

100

2008 2010 2012 2014 2016 2018

rem

ain

der

time



NEW HOME CLOSINGS UP 6.2%

0

100

200

300

400

500

600

700

800

Closings Jan - Sept

New Home Closings 2016 vs 2017 YTD

NSA New Home Closings SA New Home Closings




FORECAST SHOWS 2017 & 2018 UP FOR NEW SALES

2008 2010 2012 2014 2016 2018

80

09

00

10

00

12

00

14

00


Forecasts show 2017 closing out as high as 10% over 2016. Probably aggressive – should end up at 5% or less.2018 forecasts now look to be about 1.5% - 3.5% over 2017.



SEASONALLY ADJUSTED MONTHLY SF LEASES IN MLS



9 TRILLION GALLONS OF RAIN WATER FELL DURING HARVEY



82% OF HOMES IN FLOOD ZONES BUILT BEFORE 2000

AVERAGE AGE OF HOMES IN INUNDATION ZONES: 1980



HARRIS COUNTY PROJECTS IN HCFCD INUNDATION ZONES

Status Projects Units VDL3 Mo

ASR

12 Mo

Asr

Active Projects 90 7582 3179 1.7 1.72

Sold Out Projects 72 3223

- 1.49 1.31

Upcoming Projects 9 128 128

Grand Total 171 10933 3307 1.66 1.62



8,000 SF UNITS LEASED IN AUGUST

0

2000

4000

6000

8000

Month

Tota

l Un

its

Leas

ed

Source: Houston Association of Realtors MLS



SEASONALLY ADJUSTED MONTHLY SF LEASES IN MLS



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Houston Economics Club Houston

Housing Market Update

October 31st2017

Houston Economy and Harvey’s Impact

New Home Market Highlights

www.metrostudy.com / www.builderonline.com

Houston After HarveyHarvey: Initial Observations

• Harvey dumped one year’s typical rainfall on the Houston region in five days (49”).

• Moody’s Analytics estimates total economic losses to the Texas Gulf Coast (including Houston) of $97B, $87B of which is property losses.

• Upstream Energy, Health Care, and Aerospace, the three pillars of Houston’s economic base saw relatively minimal impact from Harvey.

• Downstream energy saw greater impact as more than ¼ of the nation’s refining capacity was offline on August 30th due to Harvey. As of September 7th 16% of capacity was offline, and this number continues to improve.

• Only 40 of the region’s 1,200 office buildings received damage.

• Apartment Data Services found that 9,662 apartment units in 177 properties, or 1.6% of the overall market inventory, were damaged. Apartment occupancies have improved slightly….but for how long?

• The Houston region is anticipated to lose approximately 300,000 vehicles with a total value of $2.4B


Houston After HarveyHarvey: What Does This Mean for Homebuilding?

167,000 single-family homes were damaged or destroyed in the Houston area…………


Houston After HarveyHarvey: What Does This Mean for Homebuilding?

….but virtually all look like this:

….not this:


Source: New York Times, Metrostudy

Houston After HarveyHarvey: Initial Observations for Homebuilding

• Largely a resale market phenomenon

• Little disruption of new home community operations

• Top 30 Builders generally reporting 1% to 5% of their inventory and models receiving damage

• Few new home communities and new home areas received flooding damage

• Sales and traffic up slightly since Harvey

• Operations disruption from employees being impacted.


Houston After HarveyHarvey: What is Next for Homebuilding

• Any sales volume increase due to flood victims is not likely until late 4Q or 1Q 2018.

• Risk of competition for trades, vendors, and materials.

• Growth opportunity for builders with BOYL operations.

• Mostly business as usual….

Houston Economy and Harvey’s Impact

New Home Market Highlights

Houston New Home Market HighlightsMSA Annual New Home Starts - Ranked


Source: Metrostudy

Rank Market Annual Starts Annual Change % Change

1 Dallas/Ft.Worth 31,280 1,654 5.6%

2 Houston 27,111 1,072 4.1%

3 Atlanta 22,594 2,145 10.5%

4 Central Florida 22,520 3,000 15.4%

5 Phoenix/Tucson 21,629 1,778 9.0%

6 Southern California 19,589 1,534 8.5%

7 Denver/Colorado Springs 19,549 1,550 8.6%

8 Austin 16,088 2,665 19.9%

9 Northern California 13,951 175 1.3%

10 Charlotte 11,929 1,227 11.5%

11 Raleigh/Durham 11,420 645 6.0%

12 Salt Lake City 11,365 1,340 13.4%

13 San Antonio 10,949 971 9.7%

14 Philadelphia Region 10,675 430 4.2%

15 Suburban Maryland 10,081 770 8.3%

0

0.5

1

1.5

2

2.5

3

3.5

5000

10000

15000

20000

25000

30000

35000

4Q101Q112Q113Q114Q111Q122Q123Q124Q121Q132Q133Q134Q131Q142Q143Q144Q141Q152Q153Q154Q151Q162Q163Q164Q161Q172Q17

M-O-S FV Ann Starts Annual ClosingsSource: Metrostudy

Houston New Home Market HighlightsAnnual New Home Starts and Closings


27,112 Starts

26,744 Closings

Houston New Home Market Highlights Annual New Home Starts and Closings by Price Range


4084

10896

6531

2881

1228797

219 477

3990

10459

6401

2989

1283891

256 468

0

2000

4000

6000

8000

10000

12000

$0 - $199 $200 - $299 $300 - $399 $400 - $499 $500 - $599 $600 - $799 $800 - $999 Over $1M

Annual

Starts

Annual

Closings

-19%

Source: Metrostudy

-12%

+ 5%

+10%

+10% -7%

+10%

-17% -24%

-5%

-29%

-4% -9%

-8%

-14%

+9%

Houston’s Top Builders and CommunitiesTop Fifteen Builders Ranked by Closings – All Brands Combined

Source: Metrostudy


Rank Builder Brand Annual Closings

1 DR Horton 2787

2 Lennar 2295

3 Perry 1451

4 K Hovnanian 1338

5 Long Lake 1169

6 KB Home 1040

7 Pulte 864

8 Meritage 804

9 Taylor Morrison 746

10 Highland 744

11 Weekley 742

12 Beazer 721

13 LGI 704

14 CalAtlantic 680

15 Westin 590

#1 Riverstone507 Starts

#5 Sienna Plantation362 Starts

#9 Miramesa294 Starts

#10 Imperial Oaks293 Starts

#3 Bridgeland413 Starts

#8 Tamarron303 Starts

#6 Woodforest340 Starts

#11 Harvest Green288 Starts

#2 Aliana443 Starts

Top 2Q2017 Communities

Ranked by Annual Starts

#4 Cross Creek Ranch382 Starts

#7 Towne Lake

305 Starts

#5 Wildwood / Northpointe362 Starts

#12 Ventana Lakes

272 Starts#14 Cypress Creek Lakes

247 Starts

Source: Metrostudy

#13 The Woodlands261 Starts

#15 Rodeo Palms224 Starts

#15 Rancho Verde

224 Starts


Houston New Home Pricing PowerHouston Remains Affordable Despite Price Increases

Houston New Home Pricing Power% of Annual New Home Closings by Price Point


Source: Metrostudy

10000

15000

20000

25000

30000

35000

40000

45000

50000

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017YTD

Tota

l An

nu

al N

ew H

om

e C

losi

ngs

% O

f A

ll N

ew H

om

e C

losi

ngs

Total Annual Closings

% Closings < $199K

% Closings $200-299k

% Closings $300-399K




Volume reduction sub $200K


New Home Inventory and Sales EnvironmentAnnual New Home Starts and Closings $0-199

Source: Metrostudy

11724

7780

931510111

9007

7203

4659 4084

12187

87149178

9828

8923

7661

4931

3990

2000

4000

6000

8000

10000

12000

14000

2Q 2010 2Q 2011 2Q 2012 2Q 2013 2Q 2014 2Q 2015 2Q 2016 2Q 2017

Starts

Closings

Starts down 65% from 2Q 2010



Source: Metrostudy

5621

4587

5749

7545

8290

9269

9888

10896

5873

4910

5439

6788

8013

8557

996610459

4000

5000

6000

7000

8000

9000

10000

11000

12000

2Q 2010 2Q 2011 2Q 2012 2Q 2013 2Q 2014 2Q 2015 2Q 2016 2Q 2017

Starts

Closings

Starts up 94% from 2Q 2010



Source: Metrostudy

2122 2213

3063

4079

5360

5942

6531 6531

2360

2153

2878

3551

4774

5855

6401 6401

1500

2500

3500

4500

5500

6500

7500

2Q 2010 2Q 2011 2Q 2012 2Q 2013 2Q 2014 2Q 2015 2Q 2016 2Q 2017

Starts

Closings

Starts up 208% from 2Q 2010

10000

15000

20000

25000

30000

35000

40000

4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

Ann Starts Ann Deliveries

Houston Land and LotsAnnual New Home Starts and New Lot Deliveries


30,502 Lot Deliveries

27,112 Starts

5,320 lots delivered 2Q 2017

Source: Metrostudy


Houston New Home MarketFORECAST

Annual New

Home Starts

Annual New

Home Closings

2015 Actual 28,064 27,922

2016 Actual 25,489 26,949

2017 Projected 26,950 26,250

2018 Projected 27,550 27,000

…now you know

Impact of Hurricane Harvey - The Houston...

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