In the Big House

Last week, expecting a call from a writer at Mansion Global (a digital publication from Dow Jones) to share thoughts about the surge in sales of large houses across the country, we thought it best to check on the data for Houston.

Sure enough, the rate of sales for large houses in central Houston market areas in the first half of 2021* is twice as high as in any of the past five years.

My wife Teresa and I live in a 3,800 sq ft house, so I consider a large house to be 5,000 to 7,000 sq ft. A very large house is 7,000 to 9,000 sq ft, and anything bigger than 10,000 sq ft is mega. Here’s what the data reveal:

That’s too big an increase to dismiss as merely a statistical quirk as we emerge from COVID.

In fact, 2020 saw a slight increase in sales of big houses despite COVID or, more accurately, because of it. But something remarkable started to happen around the last month of 2020 and has carried on through June 2021.

You may ask, is it because speculative builders are simply building bigger houses? Well, it’s true that they are building them larger and larger, by some weird logic, in order to compensate for the higher land cost. However, new construction has consistently accounted for 22% to 25% of the big house market. If anything, that share has dropped in 2021: No doubt you have read accounts of new construction being squeezed by a shortage of materials and labor.

So, if it’s not the builders’ bloat, how do we account for the surge?

Clearly, all affluent market areas have seen a similar increase in real estate sales, including smaller houses. This is corroborated by recent reports from the Houston Association of Realtors.

The explanation:

COVID helped to marginally increase sales of large houses in 2020 — there was a sudden impulsive shift towards houses with extra rooms to serve as home-offices, and backyard resort-style oases were back in vogue.

But, with vaccines just around the corner, the last month of 2020 saw a massive release of pent-up demand for large houses of the more normal sort. As much as it was an asset to be able to work from home all the time while personal safety was paramount, we saw a definite drift back to the shared workplace at the start of 2021. The separation of hearth and hard work is refreshingly valued, for now.

To put things in perspective, with a particular focus on the fossil fuels industry, which remains the main engine of the Houston economy:

  • By the second half of 2019 restructuring of the business (i.e. consolidation and contraction) was already underway.
  • When COVID hit Houston in March 2020 all bets were off. Nobody knew what was going to happen next month, let alone whether they would have a job next year. Houston hit pause.
  • By the end of 2020, some clarity emerged about who was moving out, who was staying put, and what the industry would look like for a few years ahead. All that cash from COVID-enforced savings and windfalls in the markets started to slosh into the residential real estate market. Well-to-do folks finally felt confident about pitching their tents for the longer term.

A qualification is called for here. It may be that we have seen one full year’s demand for large houses compressed into six months. The second half of 2021 could be a dud. However, recent broad-based house viewing activity indicates that there is some way to go before this market cycle is done.

An interesting side note for the River Oaks market in particular: Big houses on large lots in good locations have been selling well. So many youthful and flush buyers have been willing to pay premium prices for the big house, only to demolish it in order to create something new in their own image. Sic transit gloria mundi.

*2021 data includes all sales through 06/15/2021 plus pending contracts, on an annualized basis.