Harvey and Houston – Ripples with Housing Tides

Jonathan ScottContruction, Housing Permits, Houston

Harvey and Houston - Ripples with Housing Tides

7 min read

Jonathan Scott (Head Analyst) and Steve Byers (CEO) discuss Harvey and Houston and how it will affect permit forecasts.

Jonathan:  Hey Steve, I expect you’ve been following the situation in Texas this weekend?  Sounds like Harvey is causing a lot of damage, particularly in Houston.  I think this means we’ll need to revise our housing permit forecasts for the area as homebuilders will have their hands full with wet houses.

Steve:  Interesting.  I’m not sure we should revise them just yet.  It seems like the effects might be offsetting.  There may be a small slowdown in permits as things dry out – but that should probably take just a few weeks.  Then there’s replacing all the destroyed units.  Are there good data to look back at similar storms in the past?  New Orleans and Katrina are pretty different.

Jonathan:  Because New Orleans is  a much smaller homebuilding market?  I remember reading in a news piece this weekend that some were comparing Harvey to Tropical Storm Allison that dumped a lot of rain on Houston in 2001.

Steve:  Right.  It’s worth looking into, see what you find?  Hurricane Sandy and New Jersey might be a good comparison too.

Jonathan:  Think there were effects elsewhere, like Philadelphia?

Steve:  No, I think the damage was most concentrated on the coast, with the storm surge.  See what data you can find and we’ll talk more.

Jonathan:  Sounds good, thanks.


Jonathan: I’m not sure what to make of this research or what to expect for Houston.  I looked into the few similar storm & flooding events that we talked about and there’s not a massive drop-off in permits following the storms.

The first chart below shows Houston SFD permits in 2000, 2001 & 2002.  Tropical storm Allison hit Houston June 2001 (orange area) and you can see there was little drop-off MoM, and actually a smaller monthly drop than in 2000.

Houston-Falveston-Brazoria CMSA Harvey & Houston

-2.5% MoM June 2001 – July 2001

The second chart shows NYC and Sandy which hit in late October 2012 (highlighted).  There was a big MoM drop (-25.9%), but there was a similar decrease in 2013 so I’m not sure we can attribute it to the storm.

What do you think?

New York-Newark-Jersey City - Harvey & Houston

-25.9% MoM Oct 2012 – Nov 2012

Steve:  Might confirm my feeling that permits wouldn’t drop that much, dry out, keep building. Maybe even bumps permits with the need for new homes from ones that are completely destroyed? I wonder too if once the rebuild and recovery gets rolling if material suppliers will be under pressure to deliver? Lots of competition for basically the same materials. What about labor too? I think that the trades that work for the builders are unlikely to switch gears and work recovery, that wouldn’t make sense. On the other hand, there will be a ton of work to do and a lot of it will be insurance claim driven, so maybe lucrative though maybe not. Sigh.

Jonathan: Does it make a difference in the prospect of material shortages that Houston is such a prominent port city?

Steve: I think most building materials in the US move via rail. Not sure!

Jonathan:  Maybe I was overestimating the amount of time it will take the builders to dry out and fix the damage to the homes they currently have under construction.  There’s definitely a bump in the year after the storm, but that could be attributable to other factors.  The increase in NYC permits following Sandy is explained by our model without any recovery effects.  It’s harder to say about Houston since my model only dates back to 2005.

New York - Newark - Jersey City SFD Forecast vs. Actual Harvey & Houston

Jonathan: I had a thought – it could be useful for investors in homebuilders to have some Tides builder intel this morning.  Specifically, there should be downward pressure for Texas-focused homebuilders because of flood losses (though they might be covered by insurance) or at least due to delayed schedules and revenue as flood damage is repaired.  It would be interesting to see if builders that are heavy in Texas have their share prices hit compared to those that don’t build there.

Steve: That would seem to be the case as reported by Bloomberg. They mention labor pressure, but isn’t there more to the labor story in Houston?

I love the idea of getting an intel report out to our Tides clients specifically around this. Good thinking.

Jonathan: The author cites a quote from Metrostudy that they’ll miss 4-6 weeks of activity, but that’s assuming there will be no uptick in construction after things dry out.  Houston has labor slack with 5.3% overall unemployment in June and a 4.2% construction unemployment rate in the state of Texas, so maybe they can increase to offset the loss?  The 5.3% unemployment rate is the second-highest among metros we track, so maybe that bodes well for finding workers for the recovery effort.

Steve:  So, as things are developing, I’m seeing opinions all over the map. I talked to one person today who thought it would be months before things got back to normal for builders. I just don’t see it working out that way. I think we’ll see something between months and weeks. How’s that for being bold?

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About the Author

Jonathan Scott

Jonathan is the Head Analyst for Housing Tides. A key team member from the beginning, Jonathan has been instrumental in shaping the concept of and developing the methodology for Housing Tides. Jonathan is fascinated by the intersection of human behavior and economic outcomes and hopes that Housing Tides will help increase objective decision making by reducing cognitive bias. Jonathan studied economics at CSU.