Oil Slump Hits Houston Home Market
Energy boom drove run-up in prices, but now buyers are getting skittish
Olu Fagbemiro and her husband persuaded a builder to cut $14,000 from the price of their new Houston home as low oil prices hurt the city’s housing market. PHOTO:SCOTT DALTON FOR THE WALL STREET JOURNAL
HOUSTON—Home sellers are slashing prices and offering incentives to keep buyers from walking away from contracts as an 18-month oil slump buffets this city’s once-booming housing market.
Home-construction permits in the area plunged 26% from a year earlier in the third quarter, while December sales of existing single-family houses fell nearly 10% from the same month of 2014, according to data from the Commerce Department and Houston-area brokers.
Builders are hustling to reverse declining sales and rising cancellation rates by beefing up incentives. KB Home in October advertised homes in several of its Houston developments with price cuts of up to $31,000 and commissions available to buyers’ agents of $2,000 to $10,000.
Overall, the area’s average single-family home price was down about 7.5% to just over $280,200 in December from its June record high, according to the Houston Association of Realtors. Even the high end is hurting: The average sale price for luxury homes, defined as the top 5% of the market, fell 5% to $1.3 million in the fourth quarter from the same period a year earlier, according to real-estate brokerage Redfin.
Behind the slump is the plunge in oil prices from close to $100 a barrel in August 2014 to about $29 Monday.
“While Houston has figured out how to diversify [its industry makeup] a lot, we still are an oil-and-gas city,” said Scott Merovitch, Houston division president for closely held builder Chesmar Homes LP, which saw a higher cancellation rate in Houston in 2015 and notched 20% fewer sales. “We’re going to ebb and flow with oil and gas.”
Across the country, regions where housing markets rode the energy boom look shaky. Home prices in North Dakota are 22% overvalued, while the figure in Texas is 15% and Colorado’s prices are 10% too high, based on the historical average ratio of prices to incomes, according to Arch Mortgage Insurance Co.’s Housing and Mortgage Market Review.
Oil prices tripled between 2009 and 2014, helping Houston outpace every other U.S. metropolitan area in home construction in the period. Prices for existing Houston homes rose 37% since 2011.
The first sign of trouble came in mid-2014, when oil prices began their decline. Houston’s home sales managed to sustain their momentum until this past summer, when news of the Iran nuclear accord spurred concerns of increased Iranian oil production adding to a supply glut. At the same time, big Houston oil-and-gas employerConocoPhillips warned workers of layoffs.
Olu Fagbemiro and her husband were concerned enough about instability in the industry to demand a price cut on the home they were under contract to buy. Ms. Fagbemiro, a consultant and engineer for the oil industry, and her husband, an accountant in the industry, in October got Keystone Classic Homes to cut $14,000 from the price of their three-bedroom home under construction near downtown Houston, to $621,000.
Ms. Fagbemiro said her husband’s job isn’t in peril, but they believed the industry’s struggles were reason enough to renegotiate. They “had information on companies laying off people, and we thought the [housing] market will continue to stay stagnant for quite a bit of time,” Ms. Fagbemiro said.
Michele Marano, a Houston real-estate agent who specializes in oil-and-gas clients and worked with Ms. Fagbemiro, said “my buyers have completely backed off.” She added, “I have an enormous number of buyers but they’re sitting.”
Few neighborhoods illustrate Houston’s slowdown as dramatically as the communities that sprouted since 2011 around the site ofExxon Mobil Corp.’s 385-acre campus just north of Houston. Roughly 10,000 workers, most already living in Houston, moved to the campus as it opened in phases in 2014 and 2015. Developers readied thousands of lots for upscale houses in anticipation of a flood of oil executives moving to the area.
Now, unsold homes sit near the Exxon Mobil campus, with the supply of so-called speculative houses there exceeding the metropolitan area’s average since the second quarter of 2014, according to housing market researcher Metrostudy, part of Hanley Wood LLC.
The higher end of Houston’s market has been hit especially hard. The number of unsold lots for homes priced at $400,000 and up has ballooned, said Lawrence Dean, a Metrostudy senior adviser in Houston, who estimated it will take three to four years to exhaust the supply.
Likewise, the number of homes listed at $1 million or more rose 54% in the third quarter from a year earlier, according to Redfin. The surge allows buyers to be more selective and forced some sellers to cut prices.
Gary Sova and his wife, Beth, were able to negotiate a roughly $140,000 discount on a home in the $1 million range in the Woodlands, near the Exxon campus.
Mr. Sova, a 62-year-old executive in the waste and recycling business, said the market shifted significantly in favor of buyers from when they started looking in February with their real-estate agent, Amy McGee, to when they bought the home in early November. He said many buyers were selling because they had lost jobs or were relocating.
Agents started to say “just make me an offer.” That never happened at the beginning of their house hunt, he said.
“I think this oil thing has spooked people a little bit,” he said.
Source: wsj.com
