The strained energy industry, a devastating hurricane and the trickle-down effects of the national economy have teamed to squeeze Houston's real estate market, which at times has seemed immune from the national downturn.
This time last year, the Bayou City experienced a small boom in home sales as the median price climbed more than $15,000. And last summer, personal finance experts at Kiplinger named the fourth-largest metropolitan area the best city in the country, calling it the "Comeback Kid."
Household income grew an estimated 13% from 2000 to 2007, and the aerospace, technology and medical fields created more than 100,000 jobs. The job growth was the best among big cities nationwide.
"We were booming, and mortgage interest rates came down," says Jim Gaines, a research economist at the Real Estate Center at Texas A&M University. "Houston was doing very, very, very well. We didn't have the big bubble in house prices like elsewhere."
But Hurricane Ike's arrival in September, which devastated Galveston Island and other areas, caused delays in home building and pushed many homeowners to rent. The market slipped: From September to January, median sales prices dropped by more than $25,000.
Gaines attributes the decline to the increase in foreclosure sales in the area, as many customers took advantage of the buyer's market and looked to renovate for profit. Also, about 1,000 fewer homes were sold in January compared with January 2008.
Even so, Houston's housing market is strong compared with other metropolitan areas, Gaines says, and it has not "experienced the kind of downturn that is getting notoriety."
The energy sector and its jobs help shield Houston, so the metropolitan area doesn't experience the full effects of the national economy until about 10 months after the rest of the country.
The energy sector was a big driver, but with the price of oil and natural gas down, "We feel it coming around the corner," Gaines says. "The Texas and Houston economy are getting nervous. We know we're not immune to the economic state."