Energy sector dependence puts Houston housing market at risk
The housing market in Houston could be at risk due to the city’s high dependence on the oil and gas industry. Oil-based companies have cut jobs in a response to low oil prices, resulting in homebuyers shying away from high-priced homes. Homebuilders in Houston, which is one of the most overvalued cities in the U.S, will need to concentrate more on ‘volume and velocity in recognition of the need to restore affordability’, according to Fitch Ratings.
The Houston housing market still runs the risk of a pullback, based on a range of economic conditions affecting the city, according to Fitch Ratings.

Houston's reliance on the oil and gas industry remains a high risk factor, as between 35% and 40% of the market's GDP is based on oil and gas. Oil prices remain low, which pressures both employment and capital expenditures, Fitch said. Many oil-related companies have cut jobs in response to oil prices and that could continue.

The housing supply in Houston is above the national average and deliveries of multifamily units are expected to increase later this year and in early 2016.

The supply of single-family homes started to fall in 2011 and has resulted in an "acceleration in home prices beyond sustainable levels," Fitch said. Houston is the seventh-most overvalued city in the U.S., according to Fitch's Sustainable Home Price model.

Fitch projects that homebuilders will start to emphasize entry-level homes, as demand remains soft for high-priced homes.

Homebuilders will "focus on volume and velocity in recognition of the need to restore affordability," Fitch said.