We recently dusted off last year’s River Oaks Market Report updates to see any patterns with late Spring 2017 and, more important, to tease out any significant differences.
The first few paragraphs of our June 2017 report could be used verbatim for where we stand right now:
… mixed signals
… at higher price-points … eerie quiet since mid-April
… inventory of available houses has climbed rather suddenly … in the priciest sector
… sales at the highest price points have been disappointing
And so on.
The rise of inventory looks pretty dramatic in the chart below. The climb so far in 2018 has been remarkably similar to the same period in 2017, but at a level of about 10 houses higher each month. The number of houses for sale stood at 78 in mid-May 2018. That’s the highest since April 2011.
Sales of houses have been disappointing. And, of course, these things are related. But there’s more to this high inventory/low sales equation than meets the eye.
Before revealing the key to this market let’s take a look at absorption in the River Oaks market.
It looks seriously sluggish in the overall market (22 months to sell current inventory, up from 10 months in 2016). The over-$4 million market appears to be particularly grim: currently 39 months to sell out, up from just 13 months in 2016.
But these discouraging numbers belie the truth about what is actually going on in River Oaks and what is different about 2018.
At the less expensive end of the River Oaks market (priced below, say, $2,500,000) many of the houses sold have been destined for demolition. They are included in the inventory of houses for sale, but not of houses sold. So, the absorption numbers get skewed somewhat.
And yet, there are quite a few houses priced under $2 million that have sat on the market for a while before selling. Reason: It is an awfully price-sensitive sector.
Let’s move to the middle-market – that is, houses priced between $2.5 million and $4 million. Closed sales in this price range through mid-May 2018 involved houses that had been on the market for a very long time. Without exception. And yet all houses in this range in pending contracts at mid-May had been on the market for a short period of time, or had just had a price adjustment. This was an expression of sudden urgency by buyers. We will explain why in our forthcoming River Oaks Market Report 2018 Mid-Year Report. (To subscribe, click here.)
At the high end, houses priced at more than $4 million, there’s no question that closed sales have been slow – just four this year. There are another four in pending contracts at mid-May as I write this, but two of those contracts look iffy. The other two are incomplete new construction. Speaking of which, we are still in the antediluvian stage of new construction offerings priced over $4 million.
But what is clear is that just as with the middle-market, the high end of the market is poised to really take off. There is some decent inventory (as opposed to so much weird stuff that has been evident in past years) as well as buyers who want to buy something, sincerely.
There is no better early indicator of future sales than our tracking of showing activity. The chart below, tracking viewing activity of houses priced $2 million-plus and located in close-in neighborhoods indicates remarkable recent activity. Observe how showings in May have spiked upwards. This activity has been driven by new inventory. In our market, supply drives sales.
There was also a pickup in viewing in June 2017 (an unusually late peak for any year). This year it has happened in May, and at significantly higher levels.
Another big difference: This time last year, West Texas Intermediate oil prices were headed towards the $30s; in mid-May 2018 those prices were higher than $70 per barrel.
Let’s hope 2018 is different in other ways too. We hope that we will avoid another Hurricane Harvey episode, for so many reasons.