The latest new construction investment property is almost complete! The 3000 sq. ft. home in University Oaks will be available for purchase soon! Due to some issues with the HOA along with the city backed up on permitting we are behind schedule. However, it will still be primed and ready for the summer season.
Lower oil has now hit the Houston housing market!
Historically single family sales and price levels are fairly predictable as the year comes to a close. Beginning in July the housing market begins to slow and prices begin to fall. The lowest level is eventually witnessed in October before prices begin their uptick heading into the following year. This year however the behavior is different.
Oil prices have fallen thus causing the energy sector to reduce their workforce and decrease both hiring and transfers. There was hope of some stability when oil was deemed to have found a floor near $60 a barrel in May, but June started another free fall with oil now nearing $30 a barrel. Some economists are predicting close to $20 before it finally finds a bottom. So, how has this impacted the housing market?
Beginning in June the sales price began a decline of almost a linear pattern. October normally experiences the lowest decline in prices but Single Family Home Prices actually rose in 2015 only to see a significant dip in November. This dip resulted in values below those witnessed in November of 2014. At CCLR and Holub Realty and Property Management we still expect another increase in sales as the summer approaches. However the level of increase will be far below what Houston has experienced over the past few years. We are uncertain if the values will remain below the 2014 level at this time, but we are certain that if oil remains below $40 the impact on housing will prevent homes values increasing upwards of 8-10% as seen in previous years. Later this month we will receive the December data and hopefully the drop in prices will have halted.
Our latest investment property is actually a lot! Completion is expected early next year and is located near University of Houston. As always obtaining permits and HOA approval was a challenge, but we successfully met all the local laws and regulations with minimal changes.
The house will be two stories and just over 3000 sq. ft. You can see the preliminary elevation above and the first floor layout below. We will provide periodic updates including pictures with educational summaries for anyone interested in real estate investing so check back often!
The housing inventory is still increasing partly caused by lower oil prices. We are currently just above 3.5 months in inventory which is 1 full month above our lows earlier in the year. However, year-over-year median and average sale prices have continued to climb. Single family average home price increased 2.9% while the median price increased 4.9%.
Sales for homes $150,000 and below have continued to steadily decline for quite some time. The strongest markets earlier in the year were homes over $500k. Lately a new trend has taken hold. The lower end of the market is still hurting, but now the upper end has also begun to decrease, and substantially. In September there was a 10% drop in sales year-to-date for the high-end homes. The opposite is true for homes valued between $150k and $500k. This range has witnessed a very strong increase in sales averaging close to 16%.
What is highly important are the month-to-month changes where sales during this time of year is always negative. From August to September the average sales price generally drops by a few percentage points. Generally December witnesses an uptick only to see another decline around February. If December isn’t as strong as history predicts then we believe the market will flirt with a correction.
In Houston and surrounding areas the counties home owners have witnessed extreme increases in their appraised property values and overall tax burden. Currently in Fort Bend County there is a large group of residents filing petitions and holding protests seeking change to the current laws for tax appraisal in the state of Texas. The law permits any county tax appraising authority to raise your taxes 10% for a given year. The actual appraised value of your home can increase beyond 10% each year.
For more about the group and their efforts visit Your Houston News. Country Club Lifestyle Realty and Holub Realty & Property Management, Inc. are in support of the group and a change to the current tax code. We ask that everyone sign the petition and become active in seeking changes to the current tax code!
Inventory levels are still extremely low and continuing to drive up home prices at incredible rates. Home sales have dropped by almost 6% from the same time last year with the average price increasing almost 5%. The national home ownership rate is down to 64% which is the lowest in twenty years. With the oil industry driving our state’s economy slowing concerns about the current real estate market are well founded.
There is however some good news. Houston is still expected to increase jobs at an annual rate of around 65,000 with Texas increasing between 1-2%. Home builders are hiring and ramping up production to try and meet the current demand. Texas personal income levels in 2014 increased 5.6% keeping pace with home values. The luxury real estate market has begun to cool for homes priced over $500k. Also, first time home buyers have begun to sneak back into the market although slowly. These signs indicate that inventory will rise albeit slowly and hopefully reach healthy levels.
Texas employs some of the largest energy companies in the world. Houston alone is home to more oil companies than anywhere in the world. In 2014 the Governor’s office reported twenty companies headquartered in Houston having total revenues just under $900 billion.
As the price of oil decreases companies begin to lose revenue such that future projects are placed on hold, hiring halted, and raises significantly reduced combined with layoffs. Bloomberg BusinessWeek reported that Texas can expect a $1.8 billion reduction of monthly cash flow from production as a result of $60/barrel oil, and currently we are below $50. Yes cheaper gas allows a typical family to drive 30% further on a single tank, but those savings have just a small impact on the local economy.
The American Petroleum Institute in 2011 produced a report stating that the oil and natural gas industry is worth 7.3% of the Gross Domestic Product (GDP), but in an energy rich city like Houston this figured is far higher. Houston, like many in Texas survives off energy. If 10% or more of the economy is harmed due to lower oil prices then the local markets must eventually suffer.
The housing market in Houston is strongly influenced by the oil industry and with long term reductions in oil revenue we will see a negative impact on sales and housing starts. Currently homes valued around $250,000 and above are witnessing growth; the remaining homes are having serious struggles with a continued reduction in sales thanks to Dodd-Frank. With the average wage in the oil industry is upwards of $185,000 while the remaining industries average $64,000 (as reported by Bloomberg) clearly the oil industry feeds the upper end of the housing market that currently is thriving.
Schlumberger, Halliburton, and others have announced layoffs and other companies are soon to follow. If the price of oil stays near $50 a barrel home owners and future sellers should take notice. Rising property values will most likely come to a halt, and long term values may actually fall if oil stays this low.
For more information on the impact oil has to the housing market in Houston visit Builder Online and the article by Scott Davis. (Link below.) He has some very interesting data indicating where gas prices should be located to maximize housing starts.