Published 3 April, 2020

Houston/River Oaks Market Update 1st Quarter 2020

Last week we heard two economic forecasts for residential real estate: one national prediction for the luxury market; and the other for the broader local market. Both called for a recovery in residential real estate before the end of 2020. It seems unlikely but, if true, we find that comforting.

One of those forecasts was based on a hunch that economic damage from the Covid-19 epidemic would be limited to the travel and hospitality sectors of the US economy. The other was almost entirely extrapolated from selective economic data available prior to March 2020. Both were premature.

Let’s dispense with predictions for now and simply look at the data. Our focus is on residential real estate in the central Houston market areas for properties priced at $2 million or higher, with particular attention to River Oaks, which itself has traditionally been a barometer of sorts for the wider local economy.

Showing activity

Showing activity for all these market areas is significantly down at a time when one would expect an increase. The West U/Southampton area is an exception because of a strong first half of March. As March ended however, even that activity was much lower.

 Pending contracts

Months of inventory have experienced an interesting seesaw in the past six months. (For sellers, the lower the number the better).

  • September 2019             the market chugs along following Labor Day (normal)
  • October 2019                  the market slows on the heels of impeachment announcement/weather event
  • November 2019              back to normal
  • December 2019              wind down for the holidays (normal)
  • January 2020                  the selling season is off to a quick start
  • February 2020                sales pick up even more
  • March 2020                     absorption falls off dramatically as spring begins (not normal)

 

Here’s another way of looking at the same phenomenon focusing only on River Oaks. 2020 newly pending contracts began on a par with 2018 and well ahead of 2019, and then dropped suddenly in March. The only new pending contract for the month was at the low end of the market.

Thankfully, those properties in River Oaks that were already in contract prior to March 1st remained so and were on schedule to close.

Even in the geographically broader market, priced $2 million or higher, there were very few contracts crashing out.

 Inventory

Inventory in River Oaks picked up significantly at the start of 2020, as it should in the runup to spring. After all, a strong supply of houses is what makes the market work.

But with new contracts coming to a halt by the end of March, it remains to be seen what will happen to the 80-plus houses that are available for sale.

Typically, River Oaks sellers can bide their time until market conditions improve. However, that is not a luxury so easily afforded by the speculative builders who have many new construction houses for sale or in the pipeline. The majority of them are at the high end of the River Oaks market. In fact, more than 50% of all the houses for sale in River Oaks at the end of the first quarter of 2020 were priced higher than $4 million.

Closed sales

In terms of closed sales, the River Oaks market in 2020 started stronger than any year since 2012. There had been 13 closings in the first quarter with another five scheduled to close in April. After that, it remains to be seen, with only one other property in contract.

 Withdrawals from the market

While in River Oaks there have been few withdrawals from the market since the onset of the Covid-19 epidemic, the broader central Houston market priced at $2 million or higher has seen a significant contraction.

Summary

The high-end real estate market in Houston only started reacting to the Covid-19 epidemic and subsequent economic contraction well into the second half of March. The data will only begin to provide useful early indicators of what’s in store for the rest of the year as April progresses.

We should remember that there is a significant election scheduled for later in the year  — always a brake on sales volume in our market —  and that Houston is typically buffeted by natural disasters and national calamities around September in any given year. This spring surprise has certainly changed things up.

There are only two real factors that affect the high-end residential real estate market: sentiment about the economy and economic forces themselves. We intend to observe and report on both as the year progresses.

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Your questions and comments are most welcome.