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?

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.

@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.

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.

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.

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.

@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.

Houston - Is the market going soft?

Greg F.

Real Estate Investor · Richmond, TX · Member since 2014 · 48 posts · 22 votes

11y

We are at the top. Just like every other crash. Everyone sees the raise but not everyone sees the fall coming. In 2003 I bought a house for 106k, in 2012 I could not get that house to appraise for more than 116k with 3 different appraisers thats 9 years to the day almost. Now we have a rental in the same neighborhood bought in 2014. The one I have now is a one story vs. a 1 and half story, smaller by about 250sqft, one less bedroom, and minus half bath. Appraised for 135k in 2014 when we refied. And yes we are looking to cash out NOW while the market is still there.

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Martin Yung

Tampines, Singapore · Member since 2014 · 68 posts · 21 votes

11y

My concern with high property tax market will put a cap on the value of median priced properties. If the value keep going up, renting will be cheaper again due to high property tax. But I might be wrong as New York city has the highest property tax and yet it has 100 mil penthouses

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Lyall Storandt

Licensed Real Estate Broker & Investor · Houston, TX · Member since 2012 · 521 posts · 104 votes

11y

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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Sharon Tzib

Real Estate Broker · Cypress, TX · Member since 2013 · 824 posts · 470 votes

11y

@Lyall Storandtyour assessment is spot on. I've read estimates depending on the source that Houston's economy is 35-50% oil, no where near the 75-80% it used to be in the 80s. And not only is the Houston economy more diversified than it was in the 80s, so is the oil industry.

I was meeting with a fellow BP investor last Friday in his downtown office high rise, and we were kind of amused at the hand wringing that we see on the forums about investing in Houston (he owns 20+ SFR and when he puts a for rent sign in the yard, he gets inundated with calls). He said, "look out my window, what do you see?" I counted no less than six cranes, just from his office alone. There's about 26 total in downtown building right now as we speak.

Personally, I think they are bullish on the Panama Canal expansion set to complete in 2016 and what that will bring to the port here. In addition, millenials are coming into their own in a big way, and while most plan on owning eventually, they make up a big part of the tenant base, with more leaving home and coming online as renters soon (http://urbanland.uli.org/economy-markets-trends/evolving-housing-preferences-millennials/). And let's not forget immigration, which isn't going away either.

All in all, the population and tenant base will continue to grow here and industry and local investors I know are far more optimistic than the media pundits are (big surprise).

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Chris Martin

Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes

10y

Disclaimer: I have no property in Houston (or TX for that matter). Just an informational post.

Silver Bay Realty Trust Corp (SBY) exited the Houston market with roughly $20M in asset sales (122 houses of 150), mostly in the last quarter. Only 122 houses, their exit was because they "...recognize that over the long run, it doesn't make sense for us to operate in markets with 100 assets because it is inefficient." (see 2 for source)

From SEC filing: "During the three and nine months ended September 30, 2015, the Company sold its Houston portfolio along with certain other properties for an aggregate sales price of $18,356 and $21,063, respectively, resulting in an aggregate net gain of $2,089 and $2,320, respectively, which has been classified as net gain on disposition of real estate in the condensed consolidated statements of operations and comprehensive loss...."

I have to believe that if they felt like they could effectively grow their Houston market, they wouldn't be selling.

sources:
1.

2. David N. Miller (President of SBY) transcript:

1 Reply

William Dampier

Houston, TX · Member since 2014 · 108 posts · 30 votes

10y

Houston is an Oil & Gas city. Period. While Houston is more diversified today than it was in the '80's, it is still dominated by Oil companies. The two (2) fastest growing industries in Houston are Business Services and Hospitality. What industry do you think that the Business Services and Hospitality depend upon? If you guessed the energy companies, you guessed correctly my friend! Other than New York, Texas has more Fortune 500 companies than any other state - including California! Willing to go double or nothing and take another guess which industry leads the charge? If you guessed the energy companies, you are right again!

Is the Houston market going soft? Depends upon who you ask. Home sales are down, rent prices are going up. But make no mistake about it, this is an energy city.

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Carl Dean

Rental Property Investor · Dallas, TX · Member since 2015 · 106 posts · 66 votes

10y

@JIA KIM @Chris Martin I can tell you this from experience. Silver Bay Realty Trust might say that the market was this or that as a reason to get out but I can assure you there were other factors.

SBRT was one of my largest clients last year and purchased over 60 of my assets in Texas. When they left Houston they were just under a new COO last year. He personally told me that the reason was simply that the higher insurance rates due to storm/hurricane coverage affected the cash flow of the asset to much and they only realized this through their own trial and error.

Houston remains extremely aggressive for me at auctions and trying to find more deals constantly. I am only referring to single family rental investments personally but I can say with confidence it is a good place to invest in real estate and tops at least 10 different Forbes lists for staggering growth, much of which is not dependent on oil.

Just my two cents.

1 Reply

Rick Thomason

Residential Real Estate Broker · Amarillo, TX · Member since 2015 · 1 post · 0 votes

10y

If Houston is going soft, find me some strip centers with a 10 cap, or trailer parks LOL.

We have buyers

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Houston - Is the market going soft?

Houston - Is the market going soft?

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