In the overall River Oaks market at mid-June 2016 there are just 40 houses for sale on MLS, plus six lots. Fourteen of those houses are in pending contracts, leaving just 26 houses for buyers to choose from. Perhaps that’s just as well as we head into the dizzying heat of the summer when, so often, the local real estate market is listless anyway.
The pickings are especially slim at the entry level of the market, which we define as River Oaks houses priced at less than $2 million. There were only four houses available. And while that number has been even lower on occasion in recent past years (see graph below), the character of the market has been strikingly different in 2016. We thought this presented an opportunity to examine more closely the lower end of the market.
WHAT SOLD AND WHO IS BUYING
By mid-June 2016 nine houses have sold at the lower end of the River Oaks market, and another is expected to close before month’s end. It is extraordinary to compare this to last year: In all of 2015 just seven houses priced at $2 million or below sold. So, what’s been going on?
The answer is: In 2014 and 2015 many of the houses that sold were demolished for speculative new construction rather than for living in. Entry-level buyers were so squeezed by escalating prices that they either had to buy in neighboring areas or chose to stay out of the River Oaks market altogether, settling instead in West University, Tanglewood or Memorial. The prices paid for houses subsequently torn down by speculative builders were so high that it drove the resale market to levels that could not be sustained for those who wanted to remodel an older home. (Note the steep climb of Sales Price per Square Foot in the graph above.)
There were no lot sales in the first half of 2016 in the under-$2 million market, as the speculative builders dropped out after the real estate slowdown of Fall 2015, allowing for buyers – mostly young and local – to finally get a foothold in the neighborhood. It has presented some interesting struggles between sellers and buyers for price discovery in 2016.
All but a few of the houses that sold in the first half of 2016 were challenged by location, configuration or condition, and some were challenged by all three. But it was encouraging to sell the buyers making the most of what was available.
OUTLOOK FOR THE REST OF 2016
It was expected that this trend would continue throughout 2016, with the new construction pipeline amply filled. But a remarkable surge in sales of spec houses in May and June could change the real estate landscape once again and will be the subject of a future report.