This month I had wanted to write something typically esoteric about the River Oaks real estate market, like the current pricing sweet-spot or how a few iconic properties have “quietly” changed hands for eye-watering sums of money.
But it’s hard not to be drawn back to the subjects on everyone’s lips, namely: inflation and recession and what they mean for our market.
Far be it from me to lecture anyone about the dismal science. Nevertheless, I would point out that it would be a rare sight to catch a colleague deeply absorbed in an article about the economy, and Teresa and I have never encountered another residential realtor while tussling over the boxed-lunch selections at The Houston Economics Club monthly meetings.
The current chatter goes something like this: Inflation is high; interest rates are high and going higher; it will end in recession; our (high-end) real estate market will collapse, if it hasn’t already.
We should mention here that ahead of national elections in November of every other year, the River Oaks market (together with other high-end markets in central Houston) takes a deep breath in early October and does virtually nothing until a week or two after the results are known, at which time everything pretty much goes back as it was before, whatever the outcome.
So, these couple of weeks of slow showing activity and scant new sales contracts for the more expensive properties are now deemed the tinder for the bonfire, mistakenly attributed to economic conditions.
And it is certainly easier and more reassuring to repeat the mantra and hear it echoed back by friends and clients, whatever is actually happening in the broader economy, let alone what is happening on the micro level of real estate sales in River Oaks.
In fact, the economic picture is indicating a different outlook, which is altogether more positive than the dour prognostications thrown up by confusion, or worse, by deliberate obfuscation.
Putting it another way, the smart money is feeling good about the near- to medium-term.
Let’s be more specific. Those who are proficient in economic analysis and forecasting, some of whom we are blessed to have as clients, are confident that the outcome for the Houston economy is good for the one- to three-year range ahead. Additionally, a recent report from the Dallas Fed describes growth easing in Texas, not because of weak economic conditions, but rather as a normalization of conditions after the pandemic recession.
To be clear, we understand that there is a possibility of a mild recession in the Houston area in 2023, but the much-feared hard landing for the national economy is unlikely to affect us as much locally.
Here are just some of the factors we are hearing about: Inflation, while still high, appears to be declining, with indicators such as the broad commodity price indexes declining compared with their peak earlier this year; and higher interest rates are having an effect on asset prices, including housing (aackk!)
When people complain about high inflation and higher interest rates in the same breath, one should remember these are not strictly the same problem and that the latter is a cure for the former. The Federal Reserve has historically allowed the overnight Federal Funds Rate (FFR) to continue to increase until it tops the annual rate for the Consumer Price Index (CPI) in order to bring inflation under control.
With the Fed’s announcement that FFR may increase to as much as 4.6% by early 2023, most growth-rate-based scenarios are forecasting the convergence between the two rates (when inflation is licked) occurring as soon as March 2023 and as late as June 2023.
If you have found that timing the stock market is difficult, try timing the entire US economy. The challenge for the Fed is to try not to cause undue economic contraction in the pursuit of taming high prices. These are blunt instruments at the Fed’s disposition, and it is using economic indicators subject to constant revision. It’s akin to landing an airplane in heavy fog.
But the tools and the forecasting are ever improving. To jump to another analogy we are all too familiar with, just as forecasting the path of hurricanes has come a long way in recent years, so has the dismal science of making a soft landing in the peasoup of a globalized economy.
There will be some bumps ahead, but we expect to land back into a more normal economy next year and continue to go about our business. Meanwhile, we are well-aware of the deep pool of qualified buyers for the River Oaks market waiting for things to settle down a bit and for the right house to come along. (Thinking of selling? Give us a call at 713-240-2611.)