Houston’s high-priced home market is changing. After three straight months of declining sales in homes priced at and above $750,000, sales have remained flat two months in a row, trends some attribute to careful buyers weighing the impacts of federal tax reform, changing preferences of empty nesters or lingering effects of Hurricane Harvey.
Others disagree, saying it all comes down to location and listing price.
Kenya Burrell-VanWormer, chair of the Houston Association of Realtors, said the “considerable drop” in sales in the luxury market for homes priced above $750,000 could be attributed to buyer uncertainty and stock market volatility.
“I don’t think there’s one right answer,” Burrell-VanWormer said. “I think it’s possible some consumers are just hesitant to buy.”
However, she said homes priced between $500,000 and $750,000 have seen strong sales.
In March, Houston’s luxury homes sat on the market for almost a month longer than the average of all price levels, according to data from HAR. While inventory is tight across the board — about a 3.4-month supply — new and resale luxury homes priced between $750,000 and $1 million had a 9.5 month supply while those priced above $1 million had an 11.3-month supply.
“You can’t say it’s an inventory issue at this point,” Burrell-VanWormer said.
Cathy Blum, a broker associate with Houston-based Greenwood King Properties, attributed the slower pace of sales to tax reform changes in late 2017 that will limit the maximum amount of property tax a person can write off.
“Whenever there’s a big change, anything good or bad, people just kind of freeze up and do a ‘wait and see,’” said Blum, who ranked 19th on HoustonBusiness Journal’s 2018 list for the top residential real estate agent by sales volume.
She said tax reform changes have led empty nesters to reconsider their large homes, wondering if they still need the big house on a large lot.
“I have a lot of customers scaling down, not scaling up,” Blum said.
First-quarter sales in the $750,000 and above price range between 2009 and 2018 show homes sold ranged in size from a peak of 5,174 square feet in 2011 to a low of 4,492 square feet in 2018, on average. The biggest change occurred between 2012 and 2013, where average square footage dropped from 5,163 square feet to 4,757 square feet.
Blum currently has about eight listings priced above $1.6 million in Houston. But, she doesn’t think the market is in a state of decline. Rather, homes aren’t priced accordingly up front and that’s why they have a harder time selling.
Blum’s clients recently put an offer in on a West University home listed slightly more than $1.35 million that got multiple offers within four days.
Homes priced between $1 million and $1.4 million are the sweet spot for young professionals who can afford it and want to be inside Loop 610, Blum said.
“As soon as it hits, it’s a goner,” she said.
Despite a luxury home slowdown, Blum says homes in the $1 million and up price point are still selling.
“You have to get the price right,” she said. “You have to have the homes staged, painted, ready to go, and of course be guided by your real estate agent.”
Meanwhile, economist Jim Gaines said high-end homebuyers aren’t as impacted by tax reform changes, such as the $10,000 limited tax write-off or the $750,000 cap on the mortgage interest deduction.
“It remains to be seen if tax reform will make any real dent (on the higher-priced home market),” said Gaines, chief economist at the Real Estate Center at Texas A&M University.
He said the changes may not have the same effect on someone looking for a $3 million home.
“Are they going to now go and buy a $300,000 house just because of the $10,000 tax exemption? I don’t think so,” he said.
Gaines thought the oil downturn could have had a more significant impact on Houston’s luxury home market because it led to job losses, which translates back into the housing market. But that has already likely worked its way through the market, he said.
“Jobs aren’t being lost; they’re being gained now,” Gaines said.
However, Gaines said there is one factor that could be directly impacting the luxury home market in Houston — Hurricane Harvey.
“I’d suspect for right now, the biggest impact on the high-price market is probably Harvey,” Gaines said.
In particular, high-end homes along Buffalo Bayou or in Meyerland that took on water three years in a row could see sluggish sales post-Harvey.
Resale vs. new construction
For buyers who want a luxury home, chances are they’d prefer to build it themselves, said housing research firm Metrostudy regional director Lawrence Dean. What’s more, those same buyers may also want to build their home in the suburbs.
Beginning in mid-2015, both luxury home resales and builder-made spec homes had slower sales due to declining oil prices, but certain suburbs’ upper-end communities fared better, Dean said. Dean sees a lot of demand for upper-end luxury homes in Riverstone in Sugar Land, Aliana in Richmond and the newer, premium sections of Cinco Ranch in Katy.
“That desire harms both builders that have new speculative inventory and resale home sellers,” Dean said.
These days, Houston doesn’t have that “frothy demand” from executives relocating to Houston because of the oil industry, which makes resale options less desirable, unless in very premium, well-established locations, such as The Woodlands or Sugar Land.
However, Dean has also seen a significant uptick in tear-down and new home luxury construction in closer-in areas, such as Oak Forest. In Oak Forest, annual new home starts have jumped from 30 in the first quarter of 2014 to 104 in the first quarter of 2018, according to Metrostudy data. In the past 12 months, luxury home sales in the Heights and Greater Heights made up 6.6 percent of total home sales, according to HAR. Ten years ago, the area wasn’t even in the top five areas for luxury sales.
The location of luxury
For the past 12 months, the West University/Southside area was the top-selling neighborhood for luxury home sales, according to data from HAR, with 249 sales between April 28, 2017, and April 27, 2018. Ten years ago, the top-selling neighborhood was Memorial Villages, with 192 sales between April 28, 2007, and April 27, 2008.
The next hottest neighborhood for luxury home sales the past 12 months was The Woodlands, with 220 sales during this time. The Woodlands has consistently been a top performing luxury market, said Cheri Fama, president and COO at Houston-based John Daugherty Realtors Inc. The firm opened its third office in the Houston area off Hughes Landing Boulevard earlier this year.
While there aren’t as many multimillion-dollar priced homes in the suburbs, Fama said the luxury market in master-planned communities is still “very lucrative.” The firm does a lot of third-party relocation business in The Woodlands.
“It’s a really good central base for development north of The Woodlands, heading to Conroe, and going back to the west of The Woodlands for people who want to look in that area but are willing to look outside the (Woodlands) jurisdiction,” she said.
While the firm hasn’t committed to opening more suburban offices, Fama said the company is “closely watching” other busy markets, including Cypress, the Bay Area near Clear Lake City and Galveston as well as the Katy and Fulshear areas.
Another longtime Houston real estate mainstay, Martha Turner Sotheby’s International Realty, has six offices, including its central location off Westheimer and additional locations in The Woodlands, Memorial, Bay Area, Kingwood and Cypress. The first satellite office in The Woodlands opened in 2004 and the latest office in Cypress opened in October 2016.
Master-planned communities typically don’t “roll out luxury-end move-up portions” on day one, Dean said, but rather wait until enough of a critical mass of existing residents, amenities, retail and community attractions are around to attract upscale homebuyers.
Scott Davis, senior vice president of advisory with Meyers Research, said luxury homes can be found in multiple locations around the market compared to this time a decade ago.
According to Meyers Research’s data, the best-selling new home product priced at $750,000 and above can be found at Waterway Landing at East Shore, in The Woodlands. Waterway Builders LLC sold two of these homes on average per month from March 2017-March 2018, according to Meyers Research.
“You see a little bit in The Woodlands, Sugar Land, and the rest would be inside the Loop with areas around River Oaks, the Medical Center, The Heights, some out toward Memorial,” Davis said. “We’re seeing it in multiple locations around the city.”
Nancy Almodovar, president and CEO of Houston-based Nan and Company Properties/Christie’s International Real Estate, has a significant percentage of international buyers as clients. She estimates 35 percent of international buyers prefer to look in the suburbs while 65 percent still want to stay within the city. She partnered with Miami-based Lennar Corp. (NYSE: LEN) in December 2017 to become the homebuilder’s preferred Realtor for communities such as Tavola in New Caney where Lennar and sister-company Village Builders are featured.
Almodovar also sees a shift in her prospective buyers willing to consider condos to single-family homes. She says it’s practically a 50-50 split between her clients interested in condos and those looking at homes now.
With more luxury condos coming on the market, agents such as Blum have also seen a desire for downsizing empty nesters to consider a new condo rather than a resale or new single-family house.
“What’s interesting,” Blum said, is that these condos are “not something that’s less expensive. Some aren’t cheap.”
Gaines at the Texas A&M Real Estate Center said this could also be another lingering effect of Harvey, people opting for vertical living above ground to avoid the risk of flooding. However, Gaines said he wouldn’t write off existing homes in desirable luxury neighborhoods quite yet.
“The effects tend to be very temporary,” Gaines said. “The market tends to revert back to what it was before, after an initial adjustment. People want to live in these areas, living by the bayou with trees, the water and the aesthetics of the area. These are still highly desirable residential neighborhoods in Houston.”