Real Estate Outlook: Mid-Year 2015

As we arrive at the middle of 2015 and are finally past the overhyped sensation caused by the falling price of oil, we can say with a fair degree of certainty that the Houston real estate market is experiencing a rebalancing and that the pace of the downward correction is so far natural.

As HAR affirmed this month, “the Houston housing market had a mixed bag of indicators,” and we should expect that this is the new normal.The best approach to this mixed bag of messages is to show equanimity in pricing, negotiation, and the expectations toward both buying and selling.

First, consider these important factors:

  1. Our year-over-year comparisons between 2014-2015 mean that we are stacking current market activity against a record-setting year for sales. Not only did 2014 show anomalous growth in sales, it did this in the context of a long period of economic expansion (63 months as of April, if we are to consider the start of expansion to be July 2009). Only hindsight will tell us when we have reached a peak of this growth cycle and its effect on the real estate market, but it would be improbable to expect that a significant upward trajectory is still to occur.

    1. Therefore, in this broader context, even though sales were down just 4.3% from this period last year, they were down 7.8% for the same period from 2013-2014, meaning they are down 11.7% from where they were May 2013. This is clearly a long-term market correction, and does not indicate cause for any short-term alarm.

    2. Even so, HAR’s YTD sales data shows that “27,831 homes have been sold year-to-date in 2015 through May, only 393 houses fewer than the sales during the first five months of 2014.” This slowdown of only about 1% means that the two recent dips since last year’s record numbers (February and May) have had a soft impact on this year’s sales so far, meaning that this correction is trending downward, but quite smoothly.

  2. While we have become accustomed to a setting of low supply/high demand in our market over the past two to three years, supply is slowly but steadily increasing, with every indication that this will continue. In some segments, supply is replenishing greatly and even approaching normal. This will of course affect prices in the long run, but in the short-term to medium-term will start to affect  the performance of listings in the marketplace (as measured by DOM, number of showings, price adjustments), and the sale price/list price ratio as buyers feel newly empowered in negotiations.

Looking into the numbers

The publicized stats this month were:

  • May brought a slowdown in home sales of 4.3%;

  • months of inventory increased; and

  • prices reached an all time high.

While this is all perfectly true in the broader local market, drilling down by segment and area complicates the picture decidedly. Per HAR, “The Houston housing market has been on a see-saw ride this year, with home sales increasing and declining in alternating months. Homes priced between $250,000 and $500,000 experienced positive sales activity, while homes between $150,000 and $250,000 were flat. Sales volume was down across the lower-priced segments.”

A few significant areas to focus  on:

May 2014 vs. May 2015


Median Price

Active Listings


Months of Inventory

All Single-Family

  • 4.3%

  • 10.5%

  • 11.9%

  • 6%


New Single-Family


  • 8%

  • 16.8%



Single-Family $500s+

  • 7.9%


  • 44%



Area 9

  • 8.9%

  • 11%

  • 67.9%

  • 9.8%


This more nuanced view tells us a few things:

  • Prices are on the rise for the time being, but inventory is on the rise at a greater pace. Therefore, prices are set to fluctuate in the coming months.

  • Sales are up in some segments and areas and down in others, and are notably up in the higher end. Therefore, the impact of lower oil prices and downwardly revised job growth estimates has not been negative across the board as expected earlier in the year.

  • The time it takes to go under contract is not consistent across all segments. This means that buyers are not feeling the same sense of urgency as they were before.

Other Significant Factors

The Phantom New Home Market in Houston

An uncertain amount of new construction inventory likely exists in a phantom marketplace. We can gather this from the 38,315 single-family home permits that were issued last year (more than any other MSA in the country) and a number of new construction listings YTD that doesn’t begin to approximate that number. Developers who have waited to come to the market will likely have waited long enough to set a market price and will reach the point of needing to list. Fortunately, single-family home permitting has slowed this year, so the reality of inventory for the rest of the year will become more apparent soon.

Uncertain Demand on a Macro Level

A few national statistics:

  • According to Fannie Mae, the share of consumers who indicated they preferred to buy instead of rent for their next move improved to 63% in April following monthly declines during March and February.

  • According to Bloomberg, Consumer confidence in the real estate market and other facets of the economy reached an 8-year high in April.

  • The U.S. homeownership rate, over 69 percent at the height of the housing bubble, had fallen by the beginning of 2015 all the way to 63.7 percent. That means over the last 10 years that the U.S. has lost all of the homeownership gains of the previous 20 years. That steep drop has put the national homeownership rate back where it last was in 1993.

Meanwhile, one of the many nebulous impacts of the CFPB on housing is an overly cautious lending environment, which has a manifold effect on buyers’ activity and expectations.

Outlook & Recommendations

Because overall inventory gains are marginal, Houston is by and large still in a seller’s market. However, buyers are seeing the fluctuating market statistics as reason to engage in tougher negotiations, submit lower offers, and wait longer to submit offers. Though the inventory gains are not hugely significant, there is still more inventory to see, and the increase in days on the market reflects this. This will continue to go up. Anxious sellers may be quick to respond to this waiting game with a price reduction, which sends the message to buyers that if they hold out longer they will benefit from a reduced price and have the upper hand in negotiations. This creates a vicious cycle of negotiating against oneself. Sellers would be better off to hold firm, and should be aware that they may see more offers well under asking before they are able to see a full price offer in this new climate.

For new listings in this climate, it is far more advisable to price right at or just below the recent comps to create a sense of excitement around the listing and create a multiple offer scenario, rather than try to push the market. For listings that have been on the market for a considerable period, rather than continue price reductions, consider coming off the market to make the listing more attractive in other ways (e.g. new photography, staging, updates).

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