Throughout 2013 and 2014, Houston’s housing market generated optimism across various channels. In 2014, Houston-area purchasers closed on 75, 319 homes-a 2.8% increase over the previous year according to a report by Houston Association Realtors.
However, the city’s booming market is gradually losing momentum owing to various factors including the steep decline of oil costs in recent months. Economists and other observers anticipate momentum loss because oil costs declined by approximately 50% since last year.
The housing recovery started losing momentum towards the end of 2014. Tight credit and increasing home prices merged to sideline prospective buyers, particularly those considering a home investment. While hopes remain high for this year’s market, various factors could ruin some of the optimism.
If you’re wondering why the housing market’s slowing down, check this out.
Costly Markets
Affordability is one of the major reasons behind the Houston’s declining housing market in 2015. In 2013, home prices rose due to investor related activity on the low-end of the market. Prices soared even in markets that lacked considerable investor activity.
Numerous Texan cities are witnessing record-high home costs and while there’s some concern that oil market layoffs will disrupt that, effects haven’t been seen yet.
The median costs of Austin and Houston homes surpass the national median slightly. Price gains are easing because distressed properties are fewer. Consequently, investors’ purchases are slowing at the low market end.
Supply-Demand
The housing market is slowing because the supply is eventually catching up with the demand. Throughout the Great Recession, homebuilding activity fell considerably across the nation including Houston.
The number of building permits dropped from 55,159 in 2006 to 22,328 in 2010. Furthermore, the housing shortage along with the increasing demand resulted in skyrocketing prices. Houston’s job growth, especially in the energy sector has also maintained high housing demand.
Gas Prices
While declining gas prices are a positive thing, they’ve affected Houston’s real estate market. Experts reveal that home sellers typically worry as oil prices decline. The prices have declined from more than $100 per barrel in July 2014 to approximately $50 in early January.
Historically, considerable oil cost decline has been associated with falling home costs in energy-producing areas. In particular, declining oil costs in the 80s resulted in declines in home prices and employment in Houston, Tulsa, and other close markets.
Low Inventory
Reports indicate that large-scale institutional investors seem unwilling to sell their properties, particularly because they’ve spent considerable capital developing rental infrastructures for the rental market. While this could maintain stable prices, it doesn’t resolve the inventory problem.
The inventory for homes for sale is presently very low. According to the National Association of Realtors, the supply is a mere five-month supply in December 2014. The low inventory is currently preventing additional robust sales.
Sagging Income
Younger buyers face cash challenges because of weak employment in their age group. Meanwhile, incomes have not matched increasing home prices and rentals are soaring.
Reports reveal that rents rose over 4.5% last year. Continued limited supply and high demand will prevent rent from declining this year though their gains are slowing. This implies that while renters may wish to purchase a home, they’re barred from down payment savings for that home.
For more information on why the housing market is slowing down in Houston, contact us at Apartment Agents or leave a comment.
Image: Houston Housing