by Bryan Upton, President and CEO at Refined Custom Builders, LLC
At Refined Custom Builders, there are a few key market indicators that we keep our eyes on. Two of the most important are population and job growth. Believe it or not, we look at where U-Haul Trailers are heading. Houston, once again, is the #1 destination in the country. Why is that you might ask? Well, Houston is also #1 for job openings in the state and 5th in the country! Here are a couple of links for your reference:
We also keep an eye on home inventory. This year, the effects of Hurricane Harvey are skewing the numbers for 2017-2018 in our opinion. Nonetheless, inventory seems to be holding steady at 3.9 months indicating it’s still a seller’s market. We also like what we’re still seeing in the luxury home market, which is where we like to play. Homes sales for $750K+ are up 12% over last year.
According to the October 2018 Houston Association of Realtors (HAR) report, the luxury segment of the market was the strongest performing segment of the Houston real estate market. The overall market moved forward as well with the volume of single family home sales increasing by 4.7% and the median home price increasing 3.5% to $294,500.
Home sales broke out by housing segment:
- $1 – $99,999: decreased 9.0 percent
- $100,000 – $149,999: decreased 5.3 percent
- $150,000 – $249,999: increased 3.9 percent
- $250,000 – $499,999: increased 11.6 percent
- $500,000 – $749,999: increased 8.3 percent
- $750,000 and above: increased 12.0 percent
Oil prices have also rebounded to a profitable level. Although Houston’s economy isn’t as dependent on oil as it used to be, it still has an effect. We have now been in the $60/barrel range for most of the year, but just recently dropped to the low $50’s. Although gas prices have come down, which helps the rest of the US, it doesn’t help the Houston market. We’d like to see the price of oil bounce back in the $60 range, and expect it to do that over the next few weeks.
One slight concern is rising interest rates. However, we’re not too worried as we play in the luxury market. A large portion of our buyers pay cash. In addition, rates are still very low. Even if rates went up 100% over the next year or two (to 8%+/-) it would still be historically low. It does lower the buying power if a buyer is going to finance, but is still a reasonable rate. Granted, interest rates have been low for so long people’s perceptions have changed, but not so much that it will significantly affect the luxury market in our opinion.
Another factor that has come up recently is the stock market. It has been on fire for the last 18 months. However, it has dropped a bit in the last few weeks. Predicting the stock market is next to impossible in my opinion, as it’s no longer based on earnings. It’s based on perception. That’s why I, personally, cashed out a long time ago. With that said, I still believe we are in for a sustained positive run, although not as strong as it has been.
My reasoning is this: there was a lot of money sitting on the sidelines for years waiting for a more favorable business environment in the US. With tax cuts and deregulation, I believe there is still pent-up growth waiting to occur, but at a slower pace. We had an anemic economy where we didn’t have 3% GDP growth for eight straight years (which is a record). I believe this threw off the normal business cycle. I’m optimistic that we will see a strong economy for the next three to five years.
One other important item I want to bring up is that “all real estate is local.” It’s possible to have the housing market on the east coast dropping steeply, the Midwest being stagnant, and the West Coast on fire. You can also have Dallas cooling off, San Antonio stagnant, Austin on fire, and Houston seeing consistent growth. Then you can go to Houston neighborhoods and see that Tanglewood is seeing steady growth, West University is on fire, Montrose has cooled off and the Heights is starting to see some increased pricing again. You have to know the market you are playing in, and specifically the neighborhoods you want to buy and/or build in. It drives me crazy when I see someone post an article about how one area of the country is doing and then assume it’s going to do the same thing somewhere else in another part of the country. All real estate is local… right down to the specific neighborhood.
Here are some interesting quotes and statistics from the HAR report:
“Single-family home sales increased 4.7 percent year-over-year, with 6,716 units sold;”
“Days on Market (DOM) for single-family homes was 57 versus 61 a year earlier;”
“Total property sales rose 6.0 percent, with 8,127 units sold;”
“The single-family home median price climbed 3.6 percent to $234,653, an October high;”
“The single-family home average price also achieved an October record, rising 3.5 percent to $294,500;”
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