Houston Housing Market Bubble or Business As Usual

What To Look For In The Houston Housing Market

There is no doubt that we have two distinct Houston housing markets colliding at the end of 2015. The first is the amazing market filled with multiple over list price offers that sellers remember from 2014. The second market is filled with present day buyers who heard the stories of friends overpaying and now are insistent on paying what homes are worth. This has produced a slowdown that is leaving many people wondering if this is a sign of a Houston Housing Market bubble or business as usual.

Overall the market is still very healthy. What we are seeing now is the craziness being taken out of the market and a return to a normal selling and buying conditions. Here are the 5 ways this new housing market is different from last year and why sellers shouldn’t panic.

  1. Prices are falling, but not to alarming levels. When we look at the graphs below, we see an over 50% rise in the median price for homes in 2015 compared to 2013. A normal appreciation rate for Houston is 3%-5%. Therefore, we have a buffer of roughly 35% before we see values dip to pre-2013 levels. The only people that will suffer a loss if prices slowly drop are the ones who bought last year in an overinflated market, and now have to sell in a slightly declining market.
  2. A return of establishing and paying the real value of a home. Last year, comparable sales (comps) were generally useless. Buyers knew they had to be the highest bid among other bidders and didn’t care what the home was actually worth.  The only parties in a real estate transaction concerned about comps were appraisers. Now that things have cooled in the Houston housing market, we see a return to normal real estate negotiations and fewer bidding wars. In the charts below, I pulled numbers for July-October  2013, 2014 and 2015 for West University to compare several factors. The list price to sales price is 96%, down from 99% for the same period last year. This indicates that there is more negotiating room and less full price offers.
  3. Easier buying/selling process. Talk to anyone who bought a home last year and they will most likely express their frustration with homes they lost due to multiple offers, low appraisals, sellers unwilling to make repairs and overpaying for a home. With a general slowdown and return to using comps for pricing, a lot of the frustration will be removed from the process. Buyers can now have the confidence that they are making a smart purchase based on their needs, not a housing shortage.
  4. Watch Months of Inventory, DOM and LP/SP. While I remain cautiously optomistic about the market, we will need to keep an eye on Months of Inventory, Days on Market (DOM) and the ratio of list price to sales price (LP/SP). Months of inventory is defined as if no other homes were put on the market, how long would it take to sell the homes currently for sale. We are currently at 3.7 months inventory which still indicates a sellers market. If this number rises past 6 months, we could see a shift to equilibrium or eve a buyers market.
  5. A return to housing market cycles. Ask any Houston Realtor about housing cycles the last two years and they will tell you we have been in full throttle cycle with no let down. Now that the real estate market is cooling, we will return to busier and slower times of the year.

In closing, now is still a great time to buy or sell a home in Houston. We need to remain optimistic about our diversified economy and pro growth business environment, but lose the overconfident view that we are bullet proof. We have already seen a significant slowdown in companies moving to people to Houston combined with mass layoffs in the energy sector. So far the Houston housing market has shown some slight signs of adjustment, so any change with jobs could show more impact. As the next few months pass by, we will need to closely watch the market statistics to monitor changes.

If you have any questions about your homes value or buying or selling in the Houston area, please contact me at any time.

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