Get Ready for the 2015 Market

by Jason Porterfield

MarketUpdate_Other2The fourth quarter of 2014 ended with oil prices at their lowest levels in several years, a fact that has not yet been reflected in Houston’s real estate market. Sissy Lappin of Lappin Properties has seen this happen before.

“There will be buyers that think prices are going to come down, so they stay on the sidelines,” Lappin said. “When oil prices go back up in a year or two, they will decide to buy and the 2015 prices will look like a deal. This is the ‘should have’ buyer. Real Estate 101-When the news is bad you buy when the news is good-sell.”

Unemployment in Houston continued to decline through the fourth quarter, dropping from 4.7 percent in October to 4.5 percent in November, according to a report by the Greater Houston Partnership. Statewide, the rate declined from 5.1 percent in October to 4.9 percent in November.

While those numbers indicate a strong job market, the commission’s report did raise a few warning signals for the state. Employment declined in four of 11 sectors, according to the report. Most significantly, the second biggest decline came from oil and natural gas exploration and production, which had been driving the region’s economy. Employment in that sector fell by 0.1 percent, but was still up by about 7 percent over 2013.

Houston’s mortgage rates ticked up slightly at the close of 2014, from 3.98 percent to 4 percent, according to a survey of national lenders conducted by BankRate. The news is good for commercial real estate, as well. PricewaterhouseCoopers and the Urban Land Institute recently named Houston the top city to watch in 2015 for commercial real estate booms. The city was second on the list in 2014.

Home sales remained strong into the fourth quarter. Single-family home sales increased 1.8 percent in November to 5,092 units, according to the Houston Association of Realtors. At the same time, the average home price for the city rose to $271,232, according to the association, and the median price hit $194,800. Most sales were of homes listed at prices of $250,000 or higher. Supply remained below the national average of 5.1 months of inventory, dipping from a 2.9 month supply in November 2013 to 2.7 this fall.

While inventory dipped a bit, housing starts appeared followed suit; housing starts for November stood at 3,224 single-unit structures in the Houston-Sugar Land, Baytown area, down slightly from 3,325 in October, according to the Federal Reserve Bank of St. Louis. They showed great improvement over November 2013, when 2,888 housing starts were reported. Housing starts for 2014 peaked in July, when

Permits for 2,590 single-unit homes were issued in the Houston area in November, according to the U.S. Census Bureau. Permits also were issued for four two-unit, three three- or four-unit and 1,983 buildings with five units or more were authorized.

Interest Rates

Zeus Mortgage loan officer Paul Lamnatos believes the supply and demand levels are reflecting a very strong market. “In my experience, no matter what the market is doing, the real estate investor is out there performing to it and taking advantage of what’s available,” Lamnatos said.

Larry Johnson, president and CEO of the Johnson Development Group, also sees the market remaining strong, despite the turmoil over oil.

“Home prices have increased 8 to 10 percent in the last year,” he said. “Home price increases will slow down this quarter. Home prices held firm in the fourth quarter. Price increases will slow but the price of a home will not sell for less.”

The continually improving labor market and tight inventory bode well for Houston’s economy, and the growth shown in the fourth quarter indicate that the city will continue its growth, though the decline in oil prices may slow the city’s ongoing boom. Falling energy prices helped increase consumer confidence in much of the country to a seven-year high of 94.1 percent in October before it fell again to 88.7 percent in November.

Millennials age 18 to 34 are becoming a greater force in the region, according to the U.S. Census Bureau. Millennials made up about 24.7 percent of the population in the Houston-The Woodlands-Sugarland metropolitan area between 2009 and 2013, with about 32.1 percent living with a parent. However, they still are not entering the city’s housing market in significant numbers and rent in apartment developments where they can enjoy a sense of community, Lamnatos said. As rental prices go up, they’ll begin to realize that they can own a home for what they pay each month.

“They may not know how easy it is to buy a home,” Lamnatos said. “If they qualify, they’ll realize how much more sense it makes to buy instead of rent.”

The process could actually become more difficult with the integration of the Truth In Lending Act and the Real Estate Settlement and Procedures Act, which goes into effect Aug. 1 and requires a three-day waiting period for HUD-1 to be received and reviewed by consumers. Lappin predicts that the change will create headaches for all parties involved.

“This will wreak havoc on any closing from August-November,” Lappin said. “Why? Because lenders are so scared their paperwork will be wrong and they will need a learning period. If one document is incorrect, the loan goes into the non-performing category.”

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