Houston’s housing market stumbled in October as the impact of lower oil prices and a slower economy weighted down home sales.
The Houston Association of Realtors reports 5,873 single-family homes were sold in October, down about 10 percent from the 6,541 sold in October 2014.
Falling oil prices and cutbacks in drilling prompted Houston energy firms to lay off employees, which has been challenging for Houston home sales during 2015. But the market has performed amazingly well, appearing almost bulletproof until dented with this 10 percent decline in October.
“At the beginning of the year, we discussed how Houston home sales would normalize by the end of 2015, and after an impressive run that rivaled last year’s record levels, it looks like the forecast is coming true in the fourth quarter,” says HAR Chair Nancy Furst with Berkshire Hathaway HomeServices Anderson Properties.
Behind 2014 pace
So far this year, Houston’s home sales are running about 1 percent behind the pace of 2014. And that’s saying something since 2014 was the best year ever for home sales in Houston.
Last month’s sales were not a complete embarrassment. It was still the third-best October on record for Houston home sales.
But the local home market does not appear poised to deliver many positive surprises anytime soon. Home sales always taper off in November and December as many buyers postpone home shopping until after the holidays.
Town home and condo sales were down in October, with 508 sales, a 17 percent decline from the 614 sales in October 2014, HAR reports.
Home prices rise
The median price for a single-family home in October was $205,000, up almost 7 percent from $192,300 in October of last year, HAR reports.
The substantial rise in home prices has been motivating homeowners to put their homes up for sale, says Mahmood Pakzaban, a Realtor with Keller Williams Realty in Pearland.
“There are a lot of listings coming on to the market,” Pakzaban says.
Higher home prices liberate the owners, who can now pay for transaction costs and commissions and still have a sizable sum for a down payment on another house.
Tight inventory remains
The inventory of homes for sale has been rising. The Houston area had a 3.5-months supply of homes listed for sale in October, up from a 2.8-months supply in October 2014. A balanced market – where buyers and sellers are on equal footing – is a 6-months supply of homes for sale. So Houston still is a sellers market and anything less than a 4-months supply is a very tight market.
The anticipation of rising interest rates may also be impact home sales. A number of experts believe the Federal Reserve will make moves in December that will cause interest rates to rise.
Consumers may be motivated to buy in November before mortgage rates rise. Currently, 30-year mortgages are around 4 percent, which is low by historical standards. The “fence-sitters” who have been delaying or casually considering a move may be prompted to make an immediate move to lock in the lowest rates.
But higher mortgage rates will dampen sales to some extent when the higher borrowing costs are entrenched in the market. A single move by the Federal Reserve, while it is unwarranted, should not have a major impact of sales in 2016. However, if the Fed makes additional moves in 2016, as some suggest, higher mortgage rates could be a drag on home sales next year.
For the most part, the housing market has been resilient in the face of major decline in oil prices, which were as high as $107 a barrel in the summer of 2014 to less than $45 a barrel this week.
Even with the energy slump, across the entire state of Texas, home sales are up more than 7 percent. “Overall, statewide numbers continue to be strong,” says Scott Kesner, chairman of the Texas Association of Realtors. “At this current pace, 2015 could very well surpass 2007 as a record year for home sales.”
September was not a great month for Houston home sales. But it’s too soon to say the market has changed its course, until the market shows more deterioration.
Houston’s realty market sputtered in October, but it’s not out of gas – yet.