Real Estate Rumblings

Houston's real estate bull run hits a big snag: Record home sales to drop right along with those oil prices

Houston's real estate bull run hits a snag: Record home sales to drop

News_Real estate_for sale_sign_graphic_placeholder
It may not be as easy to sell a Houston house for a record price in 2015. Courtesy photo

Houston home sales surged in November toward a record-setting year, but the Houston Association of Realtors warns that falling oil prices will bring a slowdown in 2015.

The Houston Association of Realtors is predicting that home sales activity will drop 10 to 12 percent over the next year.

It’s all about jobs. Falling oil prices could reduce job creation in Houston next year to only 65,000 new jobs — nearly a mere half of the 120,000 new jobs Houston gained in 2014. Slower job creation in 2015 will mean slower home sales next year also, the Realtors association said.

While consumers may enjoy paying less for gas at the pump, lower oil prices mean a slower economy in Houston, which is known as the Energy Capital of the World.

 It appears the bull run in Houston housing is about over. Nobody can predict oil prices. 

West Texas Intermediate, the benchmark for American crude, took a huge tumble again Tuesday falling below $61 a barrel, the lowest level since 2009. This summer, WTI oil was trading at more than $100 per barrel.

Even though the inventory of homes for sale is exceptionally tight in Houston and November sales were strong, the Realtors group said the Houston housing surge would be tapering off.

HAR Chair Chaille Ralph with Heritage Texas Properties said: “I have been asked whether falling oil prices could impact housing in 2015, and Stewart Title Chief Economist and former HAR Chairman Ted C. Jones, Ph.D., has forecast a 10 to 12 percent decline in home sales in the next 12 months, with about a 6.0 percent increase in prices.”

Houston is having its strongest year ever for home sales in 2014. So even if sales slowdown more than 10 percent in 2015, the local housing market will still be fairly good.

HAR reported single-family home sales totaled 5,092 units in November, an increase of 1.8 percent compared to November 2013.

 In November, the inventory of homes for sale was exceptionally small. Months of inventory, the estimated time it would take to deplete the current active housing inventory based on the previous 12 months of sales, dipped to a 2.7-months supply versus a 2.9-months supply in November 2013.

With the inventory tight, home prices increased sharply. The average price of a single-family home jumped 10.3 percent from last November to $271,232.

On a positive note, the low-end of the housing market will be getting a boost from relaxed lending standards. In recent years, the National Association of Realtors had voiced concerns that overly tight lending guidelines were preventing young people from being able to buy a home.

But new rules just established by the government-chartered Fannie Mae and Freddie Mac will allow some buyers to get a mortgage with only 3 percent down payment. The first wave of those new rules will go into effect this weekend, said Houston mortgage lender Gail Evans of On Q Financial.

The lenders have a lot of stipulations and require homebuyers to have a minimum FICO credit score of 620.

The lower down-payment programs, could also help the home building industry, which has been highly focused on upscale homes with few low-priced offerings for first-time buyers.

Houston home sales have been stampeding ahead in a bull market for several years, showing amazing gains in sales velocity and prices. The question has been: “How long can it last?"

It appears the bull run in Houston housing is about over.  Nobody can predict oil prices and they could rise again in 2015. But 2014 will be the strongest year ever for Houston and the records set this year may not be broken for years.

Ralph Bivins, editor of Realty News Report, is a past president of the National Association of Real Estate Editors.