Houston’s market strength weighs on new construction’s strength

Creative Commons: Eflon: https://commons.wikimedia.org/wiki/File:Houston_night.jpg

With prices and inventory soaring in Houston, the market seems to be rebelling at the expected outcome of oil prices dropping, which some analysts argued would damage Houston’s energy-driven economy…or could it be the last stand before the bubble bursts?

BUILDER online is looking at the 50 largest housing markets and evaluating vital housing stats, employment information and population to analyze what’s good, bad and the bottom line for housing in the areas. We’ve done our own analysis of the markets on the list based on the data we’ve found.

The Good: Something we’ve been following for some time now is Houston’s strong home price increases. Prices rose 10.5 percent in May in Houston, while still being appealing compared to the rest of the country. In addition, inventory is at its highest level since Oct. 2013 with a 3.1-month supply, potentially showing that sellers are enticed by the strong market.

The Bad: While the dropping oil prices are good news for many, Houston’s energy driven economy has taken a hit from the drop off. We predicted back in January that housing in Houston was going to be hurt by the prices in the long term, based on history in the region. Sure enough, new construction fell in Houston by 24 percent in April, showing erosion in the confidence in the market. The dark side of those high inventory levels is a 4.2 percent drop in property sales from May 2014, suggesting that it might not be that there are more sellers in the market, but less buyers.

The Bottom Line: The strengths in this case outweigh the weaknesses, but Houston sits on a precarious balance between strong and overvalued. Depending on whether buyers start dipping into its inventory, or if its become an over-constructed market, Houston could still be a goldmine…or on it’s way down.