Overview

As we prepare for the biannual edition of our River Oaks Market Report (to be published in July), we have been trying to examine the extraordinary past few months from the perspective of comparison with the same period in 2019. How weird has this year truly been?

Clearly, the first half of 2020 was divided into pre- and post-COVID-19. As you have read here earlier, the River Oaks market came to a standstill in April, following a promising January and February.

New contract activity plummeted in March and April, whereas the opening up of the local economy in May allowed the release of some pent-up demand, with this May’s new contract numbers matching those in 2019. But there was a big hole to fill in 2020 compared with previous years when the spring selling season typically has provided much of the sales volume for the year.

Inventory

Just as in previous years, inventory has steadily climbed in the first six months of 2020, but without reaching the peaks seen in 2019 – yet. That has been largely thanks to the fact that, while sales have been lower in 2020 as buyers are in a cautious mood, sellers also have been reluctant to enter the market.

Sales

As one would expect, overall closed sales in the first half of 2020 are far behind 2019’s numbers.

But it may be more helpful to see how sales and inventory interact in terms of absorption, by comparing the months of supply in mid-2020 with the months of supply in 2019.

Absorption

.                         <$2MM       $2-4MM         > $4MM

H1 2019        9 mos           15 months        20 months

H1 2020       6 mos            33 months       20 months

Q2 2020       6 mos            55 months       22 months

Obviously, the middle sector of the River Oaks market, which we refer to as the working class – often consisting of two breadwinners per household – is the one that has been suffering the most since COVID. This is, understandably, the most risk-averse sector of the market. But, cautious as that sector is, when the right property comes along, we have observed much immediate attention and multiple offers.

The low-end and high end of the market are not much different in terms of absorption when compared with 2019.

Showing activity

The chart for house-viewing activity says it all. A strong start to 2020, followed by a plunge in March and April. Things picked up sharply as the Houston economy opened up again in May, but caution set in again as new infections of COVID start to rise in June. The Memorial market, bucking the trend, still had some oomph in June.

New construction

Since the COVID epidemic arrived over here, only one speculative new-construction house has gone into contract. There are more than 30 projects with something on the ground. That’s a lot of catching up to do in a challenging economic environment.

The vast majority of these speculative projects are priced well above $5 million, where there has not been much of a market, while the less expensive ones are typically flimsy and in challenging locations.

And it’s striking to note that five of the seven transactions on MLS scheduled to close in June are for land value.

Conclusion

Given what we have been living through in recent months, the River Oaks market has fared fairly well despite a couple of subdued months, even when compared with a very strong first half of 2019.

Employment numbers at the top of the Houston economy will determine how the second half of 2020 proceeds.