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Real Estate Outlook: March 2015

Setting

Houston homes sales declined for the first time in 6 months last month, with the largest dip in single-family home sales. Media reports point to oil prices and layoffs as a correlation, though there is no compelling data to support this. Continued low inventory is rightly identified as a factor while increased prices are questionably identified as a cause.


Our outlook: A growing trend that’s here to stay

The decline in single-family home sales for the month of February is noteworthy at 5.8% but should be considered in light of two other important factors last month: low inventory levels that saw virtually no relief and record highs in prices.


Houston home inventory remains scarce at 2.7-months locally vs. 4.7-months nationally. This months of inventory estimate is based solely on single-family homes and a balanced real estate market is generally considered to have 6-months of inventory.


Home prices reached record highs for a February with the average price of a single-family home up 4.5% and the median price up by 7.9%. While most news stories point to home prices as a potential cause of the decline in sales, it is more appropriate to see prices as a symptom rather than cause of the immediate sales climate: continued low inventory + high demand is leading to price increases and low inventory factors largely in the decline.


It is widely agreed upon that demand is the result of Houston’s job, population, and economic growth, as well as migration back to the inner loop from outer areas. By all estimates, job growth will slow but still constitute a gain of 60,000 jobs, continuing the flow of buyers into the market, albeit at a slower pace. First-time millennial home buyers are also expected to enter the market in noticeable numbers this year with a distinct sensibility about the negotiability of prices and a generational sense of empowerment as consumers that will make them very vigilant regarding prices.


On the other side, for the home seller, the days on the market decreased from 59 to 64 year-over-year in February, further indicating strong demand. By way of comparison, the last home sale decline in July 2014 was accompanied by a historic low in DOM at 45. In other words, a market that is altogether cooling or in a downfall would likely see a downturn not just in the number of transactions but in prices as well, and it would take longer to sell current inventory, and this has not been the case.


Conspicuously absent in reporting of the sales decline is an examination by market segment. This data is worth investigating:

Price Range

February Sales

$1 - $79,999

decreased 36.1 percent

$80,000 - $149,999

decreased 17.2 percent

$150,000 - $249,999

increased 5.5 percent

$250,000 - $499,999

increased 4.1 percent

$500,000 and above

decreased 1.4 percent


Viewed in this way, the decline does not seem hugely problematic for the average buyer or seller and is perhaps only moderately more impactful for buyers and sellers at the higher-end.


Ultimately, the Houston real estate market is normalizing. As the market continues to balance, so will the tendency of media reports to sensationalize what is a continued trend toward correction rather than a net downturn.


Due to the number of month-end pending sales in February and a drop in active listings for the same period, we will likely see a reported decline for March. Normalization will further be characterized over the coming months by increased days on the market as sellers attempt to calibrate to new market values and lower list price/sale price ratios as a reality.

 

 

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