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Real Estate Outlook: February 2015

Setting

Oil prices are down. Local employment growth is slowing but continued. Houston home sales and prices are up. Houston home inventory is down.


Our outlook

Oil prices have had no immediate impact on the broader housing market. Several specific areas of the local housing market (e.g. higher-end new construction, mid-price townhome development and rentals) will start to experience changes. However, Houston is still at historic lows of inventory to meet the demand created by the population/job growth of the last few years, so overall sales should remain up. A cautionary tone is advised as ultimately balance in both prices and the buyer’s expectations are restored to the market, where there has recently been an imbalance in the seller’s favor, caused of course by scarcity


Economic Context

The general consensus is that the deciding factor in the downturn in oil prices is overproduction, and a contributing factor is slowed growth in emerging markets. There is no strong evidence that the downturn is in response to significantly lower demand domestically, and both national and local economic indicators as a whole are stable and favoring growth. The US economy should expand at 4% or better this year. Due to oil prices, consumer spending will be up, contributing to a stable national economy.


Population and employment growth in Houston are expected to continue. They may continue at a slower pace, but most estimates show that Houston can expect to add at least 40,000-50,000 jobs this year. Houston’s population continues to expand via relocation, sustaining the demand for housing and local goods/services, while movement from outer areas of the city to the inner loop continues at a steady pace. This shift is mostly spurred by traffic congestion and empty-nesting baby boomers willing to sacrifice space for inner loop amenities and lower drive time. All of these factors will keep demand up in the inner loop for the foreseeable future. Though energy sector employment may contract, Houston’s growth in 2015 can and will draw from health care, finance, legal services, port activity, and petrochemicals.


Local Real Estate Context

Overall, the local housing market for the last month has been relatively unchanged with prices up and inventory down. There are still plenty of buyers in the mid-price market, and lending to well-qualified buyers should remain the same. Prices will remain fairly stable for now in the resale market inside the loop, again due to demand. While sales will be up for January, the rate of increase will be lower than the past few years, and this is not cause for alarm as it constitutes rebalancing rather than a net decline. Inventory may rise this month as sellers try to get on the market before the springtime in case perceived uncertainty leads to an uptick in listings.


Two points of interest:

  1. The impact on higher-end home sales will be appreciable as listings will be on the market longer and will start to experience offers under asking price. This is largely the result of buyers in this price range exercising more caution than average in response to oil prices, either because they are employed in the energy sector or have investments impacted by energy futures.

  2. Specific to new construction, lenders are starting to restrict capital to developers. The greatest impact of this will be on mid-price townhouse developments, so prices will likely drop in that market while we see an increase in incentives throughout the spring.


Otherwise, supply and demand guided by continued population growth in the Houston MSA and in the inner loop and a strong, diversified economy will ensure that the home sales climate will remain more or less the same for the average home buyer in Houston. The largest change over the coming months would likely be in supply, as both resale inventory increases during the spring selling season and the record construction permitting that took place in 2014 creates waves of new product on the market. This change is to be expected as we move away from a seller’s market. Sales volume will likely see no significant drop.

 

 

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