High Rollers

This month’s River Oaks market update is a follow-through on last month’s critical look at the high end of the speculative new construction market.

When we describe inventory levels in River Oaks, we typically provide our readers with a chart like the following:

And it’s usually accompanied by laments on our part: not enough inventory in the lower and middle sections of the market (“Come on folks – if you’re thinking of selling this is a truly great time to do so.”) and way too much flabbiness at the high end.

Perhaps the graph above is too gentle on the eye, so we thought we’d ratchet things up to more accurately display the top-heaviness of the market. We’ll do this by measuring inventory in terms of the list price of houses on the market. And, just to show that we can be nuanced, in the graph below, we have divided the $4 million-plus market into two new categories: $4 to 8 million and $8 million-plus. The danger of the data zooming off the page was also a consideration.

It looks kinda crazy, right? The under $2 million market is so overwhelmed that you can barely see it on this diagram. It’s the tiny pale blue shadow of a line on the bottom of each stack. In September, that category represents a total of about $4 million dollars divided among the three houses for sale in the under-$2 million price range.

By contrast, the $8 million-plus market has more than $245 million for sale – well, that’s based on current asking prices.

To put things in perspective, on the right side of the graph above we have inserted a stand-alone column that shows River Oaks sales for the 12 months through end of June 2023.

It gives you an idea of how long it would take to clear out the current inventory, if sales numbers continue at the same pace as we have seen since July 2022. For the very high end, our conjecture is that this is a questionable assumption.

A year or so of once-in-a-lifetime purchases by a tiny number of very high-net-worth individuals is unlikely to be sustainable or even affordable for the rest of the market. But it certainly gets a lot of attention.

Market absorption is how quickly current inventory will sell out at the rate of sales we saw in the 12 months through June 2023. Here’s how it breaks down:

                                             Under $2MM    $2-4MM        $4-8MM          Over $8MM

By number of houses    3 months          6 months         15 months       23 months

By $ volume of price      2 months          6 months         16 months       31 months

Of course, it’s not as simple as that. At all price levels in River Oaks, there are some houses that just sell much faster than others. Nevertheless, the higher the price point, the less responsive the market is to the offerings on hand.

For example, In the $8 million-plus market, where the air is very thin – and the sales volume equally so – while a few houses sell within a week of coming on the market, more often the properties linger for many months, sometimes for years. One recent sale in the $10 million range had been on and off the market for nearly five years.

Those that do sell tend to fall into two categories:

  • Completely updated, a turn-key purchase where the buyer can just move the suitcases in. This is a rare occurrence.
  • A house in a great location that might be in perfectly good condition but which the new owner will gut and renovate or, simply, bulldoze and build anew. This is more common.

We have said this before many times: While there are many Houstonians who can afford to pay $8 million or more for a house, they tend to want to do their own thing. Today’s dazzling designer-torqued, hyper-personalized, magazine-worthy mansion is tomorrow’s eye-roll.

But give us some houses in the under $8 million range, and we can really get to work.