Houston - Is the market going soft?

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Houston - Is the market going soft?

Michael Delpier
Investor · Houston, TX · Member since 2015 · 176 posts · 121 votes

Houston, Do we have a problem?

I'm wondering if the market is softening in Houston Texas.

Fair warning: I'm new to analyzing. And my information is from realtors web sites. (not raw data) But the data is reported to come from the Houston Association of Realtors (HAR)

SFH supply is 2.8 months, (2014 = 2.9 months)

DOM increased 7-days YOY

Median listing price is up 7%, but median sales price is not. (med sales - 2014 = $214K, 2015 = $208K)

Typically, Houston listings/sales ramp up in spring for the summer selling season. I don't see this happening yet. (active listings at 28K down almost 2K from 2014) My thought is people wont sell if they can't buy.

This does not seem like much, but given the market was heading up like a NASA rocket, this seems like a stumble. People are still buying, but not at the same enthusiasm as last year.

Another possible cause of the slight difference is the big investment companies have slowed their buying in Houston. This is completely hear say from a mid level employee of one of the investment companies.

Building new is currently cheaper than buying old. This is very significant in Houston as new is seen as very good. There are thousands of homes being built in west Houston.

So what does this all mean? I'm wondering if the Houston market has met it's tolerance, or is this a temporary issue due to the low price of oil.

Comments?

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Lyall Storandt
Licensed Real Estate Broker & Investor · Houston, TX · Member since 2012 · 521 posts · 104 votes
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Here's the link to latest HAR market update (April 2015).

@Michael Delpier A lot of the stats mentioned in your original post have since bounced back on a year-over-year basis. Supply is still at 2.9 months. Average days-on-market was 51 vs. 56 in April '14.

Average sales price was up 4.3% to $281,724; median sales price was up 7% to $209,790.

Active listings are up 4.9% vs. last April.

I don't think the market is going "soft." From my perspective it's as tight as it's ever been in the three and a half years that I've been actively involved in the Houston real estate market. Definitely a hard time to be a buyer, both for occupants and investors.

I was hopeful that one of the unintended side effects of the oil slump would be percentages coming back down to earth. What I mean by this is the percentage of ARV that investors are able to purchase at. Whereas 70-75% used to be the gold standard back in 2011, now most investors are happy to see anything below 80%.

@Ann Howell Hey Ann, where are your out-of-state rentals located? Also, if you have the homestead exemption your personal property taxes shouldn't be increasing more than 10% annually.

@Juan Maldonado I don't have a better number to quote you, but I'd guess more than 5-7% of the Houston economy is tied to the Energy industry. Whatever that number actually is, it's significantly lower now than it was last time there was an oil crash in the 80's.

--

My gut feeling is that we won't see any decreases in real estate prices or activity this year and I'd guess that the price of oil will stabilize somewhere around $65 / barrel towards mid-Summer. I'd also guess that most of the effects of the oil dip are already priced into the real estate market. If anything, I think the market may level off some this year, but I don't think we'll see a dip. I could be wrong. These are just my predictions.

As with anything, humans tends to over-react to any changes in market conditions or information. It's important to consider the recent jobs cuts in the Energy sector in Houston in totality with the hiring that took place during the oil boom that preceded the slump. Same thing if and when prices cool off in Houston; that info needs to be taken into account with the recent run-up of prices.

We all know that you make your money in real estate (or any investment) when you buy. As long as you're buying right for the current market conditions with an eye on what's coming or what's possible in the future, we'll all be fine.

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  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
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    I'm not watching Houston, but perhaps low oil prices are tempering things?

    1Reply
  • Fred Heller
    Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes
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    I have to respectfully disagree. I'm out in the trenches and there's no way the market is soft. Homes are selling within a few days of going on the market. They're receiving multiple offers, all over the asking price.

    2Reply
  • Michael Delpier
    OP
    Investor · Houston, TX · Member since 2015 · 176 posts · 121 votes
    11y

    @Fred Heller Thanks! I'm just looking through the window of the Internet. Good to hear the news from the trenches.

    The market is obviously red hot. So where is the top? Or is there still room to buy?

    0Reply
  • Sohrab Khosravi
    Lender · Houston, TX · Member since 2013 · 154 posts · 28 votes
    11y

    Hi,

    I agree with @Fred Heller still we have a long run to hit the top I think.some area is not that good but the good area in houston is exploding.multi offer in coupel of day and going over the asking price.

    0Reply
  • Jimmy H.
    Investor · Houston, TX · Member since 2015 · 51 posts · 11 votes
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    @Sohrab Khosravi Which area are you seeing these?  I am trying to picture the "heat map" in my head.

    0Reply
  • Sohrab Khosravi
    Lender · Houston, TX · Member since 2013 · 154 posts · 28 votes
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    @Jimmy H.

     Most in Katy, energy corridor and heights when is price right.

    0Reply
  • William Dampier
    Houston, TX · Member since 2014 · 108 posts · 30 votes
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    What I am seeing is over-priced real estate, CAP rates that do not make sense, and a lack of transactions as a result. However, gents such as @Fred Heller are probably on the front line more than I am.

    1Reply
  • Ann Howell
    Investor · Houston, TX · Member since 2014 · 128 posts · 87 votes
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    I am just getting started with buying rentals. I live in Houston, but I have not found deals here that appeal to me (CAP rates are not good enough due to high purchase price). I have put contracts on two out-of-state properties. I think the housing market in Houston is overpriced, and the oil slump will start having an impact. Maybe I'll be able to buy here at that point. For now, the numbers just don't work. You can't get a good deal if you are in a competitive bidding process. We bought our energy corridor personal home two years ago and it was extremely competitive. I will go through that for my personal home, but not for an investment property.

    1Reply
  • Adam Chudy
    Houston, TX · Member since 2015 · 36 posts · 34 votes
    11y

    Definitely not going soft. I've been looking in a variety of areas and any of the homes that I like are going in 24-48 hours. 

    0Reply
  • Sohrab Khosravi
    Lender · Houston, TX · Member since 2013 · 154 posts · 28 votes
    11y

    @Ann Howell

    You are exactly correct what I am seeing in this market is not for investors. The only part that I can see some deal is humble and spring, but you need to be very careful 99% of them dose not work for the investor.

    1Reply
  • Michael Delpier
    OP
    Investor · Houston, TX · Member since 2015 · 176 posts · 121 votes
    11y

    So.....

    I know many will remember the crash and the signs that were obvious after the fact.

    One of the telling signs were overpriced real estate with multiple bid offers, and selling in under a week. The underlying money that allowed people to buy dropped out as people were layed off. Then there was a slight hesitation. This appeared as a "slight flattening" of the market. Which ended up in a full blown crash.

    We have many of the same signs here in Houston at the moment.

    • Homes are overpriced (basically prices rose dramatically faster than incomes)
    • Underlying income is hesitating. (oil prices low and layoffs)
    • List price vs. sale price is now diverging. People list high but cant sell for that price. (most areas but not all)
    • DOM is increasing for the first time in many months.

    I am not predicting doom and gloom, and I am not experienced at analyzing the market. But I suffered through the last crash and did a lot of "how did this happen" thinking. I'm just trying to apply past experiences so I don't get caught again.

    The difference for me was, that my properties are in the San Francisco area. This allowed me to recover an not lose everything. In Houston this would not be the case. I crash here would be disaster for my personal finances because it typically does not recover quickly enough to hold on.

    These are just my thoughts. But remember, I am not an expert. But I do remember that those that relied on "personal feelings" to predict the market were hurt badly in the last crash. I would hope to get some numbers to test my feelings.

    3Reply
  • Jimmy H.
    Investor · Houston, TX · Member since 2015 · 51 posts · 11 votes
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    Is there a median price point which if above it would be more negatively affected by a potential slowdown?  For example, homes over/under 200K, whereas above it would be more negatively affected than those under 200K etc.

    0Reply
  • Agnar J.
    Spring, TX · Member since 2015 · 4 posts · 1 vote
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    Having experienced the crash while living up in Virginia we saw it first hand as well.

    Home prices would basically rise by $5000 a week in our development.  Prices went from the low 200's to over 600K in just a few years.  They came down just as fast...

    I see it here in Spring as well.  We purchased a single family home in Imperial Oaks less than 2 years ago.  I'm guessing we paid about $40k too much but can't undue that now.   We were on a tight time schedule and had few options.  At the time the builder was not negotiating like they are now.  They are not offering incentives like they are now.

    A correction has to come.  How much, who knows but when the property tax bill including an added MUD tax exceeds $11,000 a year, something has to give.

    How that will affect other areas, who knows.

    0Reply
  • Shanequa J.
    Realtor · Houston, TX · Member since 2011 · 916 posts · 296 votes
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    @Agnar J. you're saying your tax bill is over 11k? Was it a million dollar house?

    0Reply
  • Ann Howell
    Investor · Houston, TX · Member since 2014 · 128 posts · 87 votes
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    Property taxes in Houston are very high - it is the downside of having no state income tax.  When housing prices appreciate a lot, it is great for re-sale, but it can significantly increase your tax burden before you sell.  We contest our tax appraisal every year, because our property taxes go up about 20% every year based on the appraisals,  You need to factor in taxes when buying in Texas.

    1Reply
  • John Truong
    Real Estate Investor · Houston, TX · Member since 2013 · 110 posts · 23 votes
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    @Shanequa J. My tax rate on the southeast side is 2.8%. Tax in League City is 3.4%; Texas City is 2.5%. So tax bill on a $400k house will be over $10k.

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  • Agnar J.
    Spring, TX · Member since 2015 · 4 posts · 1 vote
    11y

    it is a $360k home.  The added MUD tax makes the property tax over $11k.  The MUD tax varies around the greater Houston area.

    0Reply
  • Leigh Ann Smith
    Manvel, TX · Member since 2014 · 309 posts · 127 votes
    11y

    We're not seeing any slow down on the south side of Houston, as far as I can tell. An investor friend with experience in Houston told us that they have quit buying because prices are too high.  He said "hold on to your money". We are still actively looking, but have to constantly remind ourselves that just because everybody else is willing to pay too much, it doesn't mean that we have to.  We have our spreadsheet, and that's what lets us know how high we can go on a house.

    2Reply
  • Jaison Emmanuel
    Investor · Missouri City, TX · Member since 2015 · 70 posts · 19 votes
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    Sugerland seems to be booming.  I mean people seem to be buying new property / moving into the neighborhood over there. 

    I have a rental property in Stafford.  That area is good for rental. 

    0Reply
  • JIA KIM
    Houston, TX · Member since 2015 · 3 posts · 0 votes
    11y

    Hello,

    I live in Houston TX. but Fresh new in Real estate investment.

    What if the Oil price keep stay in low price for next year or two years?

    How it usually effect in real estate in Houston?

    Thanks in advance.

    0Reply
  • Juan Maldonado
    Austin, TX · Member since 2012 · 137 posts · 62 votes
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    @Michael Delpier & @JIA KIM,

    I work in the multifamily apartment complex universe. I can tell you that many people outside of Houston are watching oil very carefully. At a conference in January of this year in California everyone I talked to would bring up oil because I had a TX name tag. They are very worried that oil prices will lower oil production and therefore the Houston, economy will be impacted negatively mostly through unemployment and subsequently less new hires. Interestingly enough a wealth investment manager told me wasn't worried because as a whole only 5-7% of the Houston economy is tied into oil.

    Yesterday I was talking to an investment officer of probably the largest manager/operator in multifamily (400k units), when I asked him where he would invest if he had to choose between Houston and Dallas, he said right now "Dallas, no doubt. Houston has too much volatility with oil". He did mention in the long run it would be fine.

    That said, if you talk to someone in the trenches in Houston, they like what is happening. As someone pointed out above. The guys that are looking at the market from CA, NY and abroad, don't want to invest so it is depleting the buyer pool, making their deals less competitive. As these guys are more "micro" its an advantage for them as they know what they are getting into, so they are not afraid of current oil prices.

    At a big conference in late 2013, Houston was #1 on the list for city to invest in, almost across all your major food groups (Residential, Commercial, Industrial), however this was pre oil slump. If anyone wants to receive some of the updated trend reports send me a PM.

    My thoughts: If you know Houston well and you know the areas you are investing in you should be fine. If you are just looking to get in there now this oil slump may help you as the current climate is not as competitive. However your debt and equity partners may not be so bullish and may need to be walked through your business plan thoroughly.

    Again this is multifamily and the groups and people I have referenced are looking to make 15 Million plus investments, so if your a SFR flipper, not sure how helpful this may be for you.

    2Reply
  • Michael Delpier
    OP
    Investor · Houston, TX · Member since 2015 · 176 posts · 121 votes
    11y

    @JIA KIM in the current market, finding the sellers listings will bring the most income to an agent. I would focus on that. If your not investing, this should not significantly affect an agents income. The volume of sales is still very high and stays generly healthy even the down times. But in the down times your focus will switch to finding buyers.

    @Juan Maldonado I have heard similar. The big home buyers have cut their buying significantly and are now in selling mode to get rid of their lower performing properties.

    Another tid bit I heard from an oil exec, they are conserving cash to buy the small guys as they fail in this low oil price market. This will leave many without jobs as their position becomes redundant.

    The Tomball SFR building has stopped in the last month. The same thing happened last down turn. It was strange to see large developments left half done.

    What I see in Houston is a super hot market that has the true investors sitting on the sidelines.

    I still don't know if Houston market is turning soft, but people are doing some crazy things.

    I would be very interested to see if anyone (investor, newbie, or agent) that does not believe Houston is in a bubble.

    0Reply
  • Jimmy H.
    Investor · Houston, TX · Member since 2015 · 51 posts · 11 votes
    11y

    I don't know if it is really soft or not, but I am not about to participate in some ridiculous bidding frenzy and that's why I've passed on a few "deals" in sheep clothing.

    0Reply
  • Juan Maldonado
    Austin, TX · Member since 2012 · 137 posts · 62 votes
    11y

    @Michael Delpier, interesting to hear about the consolidation in the market, certainly after hearing what you said makes a lot of sense. Like anything else the little guys probably had to take some bigger risks and make some bolder projections, while not having all of the research and back office tools that the larger shops have in order to compete, now unlike the big guys they don't have the cash reserves to cover the overhead. 

    Your oil exec comment about job consolidation also makes sense and I guess that must be one of the underlying factors that some of the big players I mentioned understand and are probably anticipating. Certainly it isn't the Oil itself they are worried about but certainly the multifamily industry is tied to employment and job growth and they could know that job losses are on their way. 

    Honestly for RE most of the Texas markets are just incredible right now. My wife and I are starting to look for a house and it tonight to know your buying into such a big sellers market. 

    0Reply
  • Mark Nolan
    Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes
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    @JIA KIM

    Welcome to the Bigger Pockets community.

    0Reply
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