2015 Real Estate Mid-Year Report: General Outlook

July has arrived, which means summer heat is here to stay, it’s time to celebrate our nation’s independence and half the year is behind us. That also means we have six months of real estate data, information and trends to look at. With that in mind, I would like to dedicate a few posts to analyzing what we’ve seen so far in the 2015 real estate market and what to expect in the second half of the year. Today, I will focus on Houston real estate as a whole, and what the 2015 numbers to this point have told us.

Heading into 2015, there was much concern over how the Houston real estate market would fare due to falling oil prices. With oil prices dropping to around $50 per barrel, there was an overhyped sensation that the Houston housing market was going to suffer a serious drop off. Many feared that the Houston economy was overly dependent on oil and would be in complete shambles due to the low oil prices. The high number of cutbacks in the sector meant that Houston job growth was supposed to be non-existent. And with job growth so closely tied to home sales, the expectation was that the city’s home sales were going to fall almost as hard as oil prices.

This concern, while somewhat warranted, has proven to be overly exaggerated. Home sales have fallen, but not as drastically as some expected. More importantly, the decreasing sales have been a result of a natural rebalancing more so than the falling price of oil. The numbers have fluctuated from month to month, and HAR stated in June how “the Houston housing market had a mixed bag of indicators,” but a trend does seem to be developing. The trend is that of a market normalizing after a record-setting year for sales in 2014.

2014 was an anomaly for housing sales and those record high numbers were likely to come down in 2015 regardless of the price of oil. When placed against this greater background of a long period of economic expansion (64 months as of May, if we are to consider the start of expansion to be July 2009), it was improbable that a significant upward trajectory was to come. Thus, in this broader context, year-over-year sales being down 4.3% and 11.7% from where they were in May 2013 shouldn’t be reason for concern. This clearly just represents a natural correction, as the recent incredible highs of the market were unsustainable in the long term.

While Houston home sales are trending downward, thus far the slowdown has not been as severe as May numbers suggest. HAR’s sales data shows that “27,831 homes have been sold year-to-date in 2015 through May, only 393 houses fewer than the sales during the first five months of 2014." That amounts to about 1% fewer homes sold so far this year than through this time in the record-setting 2014. There were significant dips in February and May numbers, but overall, the market’s rebalancing has been a smooth one.

During the past couple years, the Houston housing market has been one of low supply and high demand. 2015 inventory levels up to now though, reveal that supply is slowly, but steadily increasing. May months of inventory jumped to 3.1 percent, which not only represents a 9.1 percent increase over May 2014, but is also the highest Houston has seen since October 2013. Every indication is that supply will continue to increase. To this point in 2015, prices have been on the rise, but with inventory also on the rise, prices are set to fluctuate in the coming months. The performance of listings in the marketplace (DOM, number of showings, price adjustments) will also start to be affected by the increasing housing supply.

What does all this mean for buyers and sellers? For buyers and sellers alike it means that the best approach is to show caution in pricing, negotiation and expectations. With more inventory to see, sellers should notice an increase in days on the market. This new climate calls for a more concerted effort from sellers, but still leaves room for much success given smart pricing and realistic expectations.

Looking to buy or sell a home, or just have questions about the market? Always feel free to contact me at 713.829.3052 or cynthia@cynthiamullins.com.

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