They recognize that Houston has not been hit by the subprime meltdown to the extent experienced in many other parts of the country. They cite favorable impacts of the city's strong economy and job growth rate.

"No matter where the U.S. commercial market goes in terms of number of transactions, Houston will remain one of the better performers in the marketplace," says Ted C. Jones, senior vice president and chief economist for Stewart Title Guaranty Co.

There's also a bright side to the residential market, despite a deceleration in residential construction growth.

"We are missing the market correction that is affecting other parts of the country, where home prices are dropping sharply," notes Adriana Z. Fernandez, economist with the Federal Reserve Bank of Dallas Houston Branch. "Construction remains much stronger than in most other large metros."

Like others who are watching sales statistics, she points out that, "while home sales are not keeping up with the record-breaking pace of the past two years, they are still on par with 2004 numbers."

The bottom line: "We should continue to see a relatively stable residential market in Houston for 2008, although not a rapidly growing one," says Fernandez.

Commenting on a drop in property sales in November, Houston Association of Realtors Chairman Rob Cook, calls the numbers "disappointing."

Cook, broker/owner of Robert D. Cook Properties, softens the appraisal by adding that it's not unusual for sales to slack off near the holidays and that the drop was "far from the loud thud being heard in markets outside Texas."

An encouraging sign, he says, is an increase in average and median home prices.

"The increases demonstrate that Houston's real estate market has staying power through the subprime debacle," he says, "and continues to offer a sound investment opportunity as we head into 2008."

Betty Bellomy, an agent with John Daugherty, Realtors, notes that the firm experienced its best November in the history of the company and is having one of its best years.

"Indeed, JDR is seen as a 'high-end' company, and often the high end is somewhat immune to downturns," she says in a market newsletter, "but in spite of that image, our 'bread-and-butter business' is still in the $300,000 to $500,000 range -- a range vulnerable to downturns."

She calls "the Daugherty experience ... further evidence of a city more than holding its own as other cities grapple with a depressed real estate market."

Houston real estate contends with both positives and negatives:

Positives

• Population/job growth. "The population of the Houston metro area is anticipated to expand by more than 610,300 over the next five years," notes M. Ray Perryman, president and CEO of The Perryman Group in Waco and institute distinguished professor of economic theory and method at the International Institute for Advanced Studies.

He says the ongoing strengthening and expansion of the Houston metro's business base will keep the commercial construction and industrial space from seeing "significant decline."

Fernandez notes that strong job growth, especially in the professional and technical ranks, continues to drive strong demand for both housing and office space.

• Multifamily market. "Perhaps the only winner of the subprime implosion (other than buyers of lower-priced resales of foreclosed homes) are apartment owners," says Jones. Those losing their homes in foreclosures or unable to get loans "have to live somewhere, and apartment owners become the benefactors . . . Rising demand for multifamily housing is a given."
  
• Industrial market. Jones also notes that industrial space, "one of the key indicators of the economic health of a growing economic base," has a low vacancy rate. He says "ditto" to his prediction made last year that "increased cargo flow through Bush Intercontinental Airport and the Port of Houston portends growing demand."
  
• Investment finance. He also points out that Houston is "particularly attractive" to real estate investors because of the "comparatively greater cap rates found locally."

"Houston is currently the most undervalued real estate market in the country," says EquityScout.com founder Christopher Smith. "Oil prices are hovering near $100. Oil companies are hiring. The local economy is ticking along. Yet out of 330 market areas in a recent Global Insights report, Houston is dead last in terms of matching its potential with regards to property price.

"This is a bullish indicator, showing there is far more upside than risk for investors and homeowners in Houston," he says.

• Office market. Jones notes that, in 2007, the "one-two punch of growing employment and soaring energy prices" brought declines in the office vacancy rate, and continued improvement is expected in 2008.

Negatives

• Retail market. The "massive construction" of retail is considered a negative by Jones, but, apart from this segment, "Houston's commercial real estate will have another bowl-game season," he predicts.
  
• Low-end housing market. Fernandez notes that subprime borrowers "comprised a larger share of the total in Houston than in most other large metros" and that "the result has been a downturn in sales on the low end of the market."
  
• Labor/materials. She also expects Houston to see a decrease in the construction labor force "due to the more stringent immigration laws and enforcement" and says, "Tighter credit standards along with higher labor and material costs should impact the industry negatively next year."

Negative reporting by the national media is fueling the downturn in residential real estate sales, says Dawn Cornell, president of Cornell Properties.

"It can shake consumer confidence and help make their predictions self-fulfilling as home buyers stay on the sidelines," she says. "Sure, there is pain out there. Foreclosures are rising and construction workers are being laid off. But consumers who are in housing for the long term are poised to come out well ahead.

"Once the psychology catches up with our real market conditions, the pent-up demand will be released in the form of home sales," she predicts. "The important economic trends are pointing in the right direction."

tqaddumi@bizjournals.com; 713-395-9660