Author Archives: Bryan

Oil Prices and the Houston Housing Market

Skyline of Houston, TexasWe’ve been getting asked, A LOT, about what the real estate market in Houston is going to do in 2015 with oil prices dropping so far so fast.  The short answer is we don’t know for sure, and neither does anyone else.  However, we do have some ideas based on a combination of expert opinions, research, and gut feelings.  We are using this same information to make buying and selling decisions in our business so this is not a, “Do as I say.  Not as I do” opinion, but a plan we’ve put in place in our own real estate businesses (Custom Home Building, Real Estate Brokerage, Flips, and Rentals) that are all centered around the real estate market.

Houston’s 2015 Economic Forecast
On January 6th the Greater Houston Builder’s Association (GHBA) hosted Dr. Mark Dotzour of the Texas A&M Real Estate Center who, in our opinion, is the foremost expert on the industry.   We were fortunate enough to attend the presentation and will attempt to summarize his presentation below with a sprinkling of our own research:

Demand For Housing Is High
People are moving to Houston (and Texas) in record numbers.  In 2014 Houston was the #2 city in the country for population growth.  It is also the #1 destination for U-Haul trailers for five years in a row, with an average of 137,000 people moving to the city per year.

Supply of Housing is Low
Anytime available home inventory is below 6 moths it’s considered a seller’s market.  According to the Houston Association of Realtors (HAR), inventory in December 2014 was at 2.5 months.

Affordability
Houston is still considered a bargain compared to most of the country.  Ask anyone from the East or West coast and they are shocked to find how far their home buying dollar goes here.  The relative affordability of Houston housing should help insulate a drop in pricing.   You can find more information on affordability here:  Culture Map:  Houston Housing Underpriced  

Builders Cannot Keep Up With Demand
Lending

Banks learned from their mistakes in the 2008 real estate bust.  They are not willing to loan to builders at a rate that can keep up with demand.

Labor Shortage
In addition, there is not enough labor to build the houses.  When oil was booming the construction industry lost a good deal of their labor force to the oil fields.  This causes longer build times delaying delivery of finished homes.  Builders are fighting over labor.

Increased Time to Build
It now takes, in the Houston area, two to four months longer to build than it did several years ago.  One reason we already discussed, which is a labor shortage.  In addition, with apartments and other commercial property being constructed all throughout Houston, architects and engineers are flooded with work, which means it takes longer to push out a set of plans for city approval.

In addition, the city is taking longer and longer to approve plans because they do not have the staff to review.  What used to take a week or two can now take up to two-months for city approval.

Homebuyer Lending
Bank have also changed their underwriting criteria for homebuyers.  Once again, learning their lessons from 2008, they are requiring higher credit scores to qualify.  In addition, they are requiring 20% down payments.  This equates to buyers not getting into trouble with their loan (for the most part anyway… there are always a few).

What this means for the banks is that they are in a better position financially because they do not have as much risk in the market.

Interest Rates
Interest rates are at historical lows and are anticipated to stay low for the foreseeable future.

City Diversification
Houston is no longer just an “Oil and Gas” city.  It is much more dynamic than in the 80’s when the whole city went bust because of oil prices.

Dr. Dotzour believes oil prices will remain low through the summer and possibly into the fall.  They will then begin to rise again.  How high?  No one is certain.  However, he had sound reasoning in his presentation, and this is the one that stood out the most to me.  Oil derived from fracking will drop significantly as most of the oil from these wells (70%) are extracted within the first year.  With oil dropping below $50 a barrel drilling will significantly decrease.  This will lead to less supply, which will lead to increased prices.

There are other factors to consider as well.  Dr. Dotzour also pointed out that the economy continues to expand despite the U.S. fighting 5 wars concurrently:

  1. A “HOT” war with Iraq, Syria, Afghanistan
  2. Cyber war with Russia and North Korea
  3. Currency war with China, Japan, and Europe
  4. Carbon war with OPEC
  5. Mortgage war with Dodd-Frank regulators

He believes part of the precipitous drop in oil prices is the U.S. trying to suffocate Putin in Russia, and are doing a pretty good job of it.

More than likely oil prices will rebound in late summer or early fall.  How much no one is sure.  What does all this mean for the Houston Real Estate market?  The indicators point to real estate prices stabilizing and possibly going flat, but sales will continue to happen as supply for housing is low and demand is high. Homes may sit on the market longer but will hold their values.

Ways to Reduce Your Risk
If you are like us you like to hope for the best and plan for the worst.  Here are some strategies you can implement to reduce your risk while the market shakes out:

Location
We all know that location is king in real estate.  Buy in the nicer parts of town.  Avoid “War Zones.”  For example, the Inner loop and Galleria remained attractive and still experienced price appreciation even in the worst real estate market in history from 2008 – 2012.  You will pay more for these types of properties, but you reduce your risk.

Do Not Factor in Appreciation
This is key.  When analyzing projects look back not forward.  If prices have been going up in the area you want to buy, it can be tempting to anticipate the price continuing to rise.  We strongly recommend you never project price appreciation into a buying decision.

Do Not Over-Leverage
One of the major advantages real estate offers is the ability to leverage an asset to increase returns.  This can also work against you; especially in a declining market.  We recommend taking a page out of the banker’s handbook… keep at least a 20% margin (or better).  Simply, don’t finance more than 80% of the value of the asset and, with the market potentially in flux in Houston, you probably want to keep that at 70% loan-to-value.  What this means to the investor is you could potentially absorb a 30% drop in prices.

Even in one of the worst (if not the worst) real estate market ever to hit Houston in 2008 through 2012, prices only dropped 5% – 6% (on average).

Price Point
Even when an economy stagnates or contracts there are two segments of the real estate market that tends to still do well.  It is the lower-end (below $120,000) and the luxury market ($750,000+).

In the lower-end of the housing scale I would caution against flipping (reasons why are for a different article).  However, if you are looking to pick up some rental property this is when you buy.  Rentals in this price point are in high demand.

On the luxury price point there also tends to be a steady market.  Why?  Because the wealthy tend to have cash reserves and can afford large down payments (if not purchase with all-cash) and have high credit scores that allow them to qualify for bank financing.

Cash Flow
If you are going after rental properties do not purchase them if they do not have positive cash flow.  Negative cash flow can get you into trouble if the market goes South and you cannot sell when you originally timed.

Also, assume you will hold your rentals for the long-term.  A mistake we see rental investors make is they think they will hold the asset for a year or two and then sell to pull out their equity.  The problem is timing.  If the market dips you could be at break-even or worse because you have to also keep in mind there are costs to sell the property (Realtor commissions and closing costs, which can run 7% to 10% of your sale price).

If you go in with the mentality the rental will be a long-term hold, but you will sell if the market is right, you will be not only be financially positioned, but also mentally positioned to ride out any valleys in the market.

Renovation Cost Estimates
Because of the construction going on all around Houston prices for materials has increased significantly.  In addition, labor prices have gone up due to the lack of manpower lost to the oil and gas industry.  We could see a decrease in labor and materials in 2015, but I wouldn’t count on it.  When you are budgeting for your project plan on your renovation costing you more in 2015.

Great Product
Competition for buyers will increase in 2015.  This means you need to have the best product on the market in whatever neighborhood you are buying in.

Competitively Priced
You also need to be competitively priced.  We’re not saying if you have the best product you can’t command a higher price, but be careful not to get greedy.  Your house will sit on the market costing you money.

One of our mentors beat this into our head continually.  Best product.  Best Price. It’s a winning combination.

Conclusion
Like we mentioned throughout the article we are not clairvoyant and neither is Dr. Dotzour or anyone else we have referenced.  However, based on the experts, research, and a feeling for the market (being deep into it every day), we believe the Houston real estate market will forge ahead.  Perhaps not at the pace it’s been on, but we don’t see a collapse happening in 2015.

Lakes Of Parkway

LOP Pic

Just a few minutes west on Interstate Highway 10 is a neighborhood of custom homes on expansive lots set among beautiful lakes and trails. Lakes of Parkway are one of the most sought after premier neighborhoods in West Houston and are now essentially complete.  Kickerillo is a Houston-based company focusing on building premier custom homes and land development for the past 50 years. They have developed over 30 communities in the Houston area, including Lakes of Parkway. The neighborhood boasts nine lakes, paved jogging trails, magnificent oak trees, recreation center, tennis courts, lighted fountains, Olympic-sized swimming pool and a guard gated community.

How may we be of service to you? Please call our office at 281-497-4729, or email Victoria Springer at mailto:victoria@uptongray.comWe want to be your Realtor!

Houston #1 U-Haul Destination in the Country

u-haul-2013You’ve heard us mention the Houston is the #1 destination for U-haul’s in the country. Did you know that in 2013 it was the 5th year in a row the city took the top spot? If you’ve been looking for a new home you know there isn’t much out there, and what is out there moves very quickly. If you’ve been wondering why it’s because 137,000 people a year are moving to Houston and need a place to live.

Below is a link to the article…

http://www.uhaul.com/Articles/About/2018/U-Haul-Names-Houston-as-the-Number-One-Top-2013-US-Destination-City

Houston Real Estate Bubble?

UnknownBelow is a link to a Houston Chronicle article.  In the piece Trulia thinks the Houston market is slightly overvalued. In our opinion we believe they are mistaken. Prices are a function of supply and demand. Currently, there is more demand than supply which pushes prices up, and that doesn’t look to change for several more years. Houston is the #1 destination for U-Haul trailers in the country and the people moving here have to live somewhere.

With the collapse of the market in 2007 – 2012 there was virtually no new construction home building going on, yet we have been adding over 30,000 people per year to the city (Census Bureau). New construction is just starting to take off again in the city, but will take several years for supply to catch up with demand.

In addition, there is a pent up demand from buyers who have been wanting to own their own home, but have been afraid to wade back into the mortgage waters because of the economy and tighter lending standards (which are starting to loosen slightly). With the economy in Houston doing well buyers are back in the market, which is also driving prices higher.

What we learned from the 2007 market downturn is to watch the supply and demand curve and ignore what people are “feeling” in the market. As you see supply catching up with demand is when you want to be cautious about buying (but it’s usually a great time to sell).

http://blog.chron.com/primeproperty/2014/03/is-houston-headed-for-a-real-estate-bubble/#21862101=0

West University

West University is an area located on the southwestern edge of Houston’s central business district and just north of the Texas Medical Center. The City of West University Place was established in 1911.The City of West University Place is a residential town within the confines of the City of Houston. West University (or even just ‘West U’) grew up with Rice University founded in 1912, and its academic charm and residential purity make it one of Houston’s most desirable neighborhoods. Professionals wanting to plant family roots tend to target this small town due to all of its charm. 

The West U area boasts beautiful architecture, and newcomers may opt to remodel a vintage home, choose a lot for new construction, or select a finished home to suit their tastes. From its beginning, the neighborhood prospered from strict zoning and deed restrictions. The residents are protected against invasion of industrial development and West U has emerged as an island of residential stability. 

Allowing for lot size, condition, and neighborhood location, West U area home prices range from near $400,000 for a lot into the millions for a substantially renovated and updated classic home built before 1970. Homes constructed between 1970 and 1995 range from the $500,000s into the millions. Prices for homes constructed after 1995 range upwards from the $500,000s for patio homes, and from the $800,000s upwards of $2 million for single-family homes. 

The West U area offers access to a variety of Houston’s finest museums, Restaurants and Reliant Stadium. The community center at Auden Street and University Blvd. houses the City of West University Place City Hall, the West University Place Police Department, and recreational and community gathering facilities. 

Some of the Houston Independent School District’s finest schools serve the area including West University Elementary School, Pershing Middle School, Mirabeau B. Lamar and Bellaire high schools, and the Rice School, magnet school for kindergarten through the eighth grade. A number of private schools are also available.

How may we be of service to you? Please call our office at 281-497-4729, or email Victoria Springer @ victoria@uptongray.com. We want to be your Realtor!

Meyerland

Three generations of the Meyer family were instrumental in the development of Meyerland. Joseph F. Meyer was five years old when his family moved to Houston soon after the Civil War. During the 1890’s, Meyer bought rice fields southwest of Houston, accumulating over 6,000 acres. In 1955, one of his sons, George Meyer, developed 1,200 acres of his father’s purchase into a subdivision for single family dwellings; in the spring of that year, Vice President Richard M. Nixon cut the ribbon for Meyerland’s grand opening. 

In October, 1957, Meyerland Plaza Shopping Center opened with a celebration of “Around the Shopping World in 80 Acres,” featuring hot air balloon rides, and Little League Baseball was introduced to Meyerland Park. Residents started garden clubs, and by 1958, the Meyerland Teen Club and the Meyerland Civic Club were thriving. The Meyerland Club, home of the nationally recognized Meyerland Swim Team, opened its doors. 

As a planned community, Meyerland was famous. Look magazine devoted four pages to it in 1957, and House and Home magazine did a feature in 1958 touting Meyerland as the “ideal plan” for a subdivision. 

Today, there are over 2,300 homes in Meyerland. Its location makes it accessible to all areas of Houston; it is close to the 610-Loop, the Texas Medical Center, downtown, Greenway Plaza, and the Galleria. Meyerland is highly regarded for its strong deed restrictions enforced by an active civic association, its 24-hour security patrol, and its solid real estate value. 

New and younger families are moving into the neighborhood. Many are second-generation Meyerlanders who are returning to this community of friendly people, excellent schools, and first-class shopping. Home prices range from the low $100,000s upwards to under $1 million.

How may we be of service to you? Please call our office at 281-497-4729, or email Victoria Springer at mailto:victoria@uptongray.com. We want to be your Realtor!

Briargrove



Brairgrove is a neighborhood with approximately 1,000 homes; it is one of the most desirable subdivisions in the city. It is bordered by Briar Ridge on the east, Briargrove on the west, Westheimer on the south, and Woodway on the north. Home prices range from the high $400,000’s to more than $1.5 million for new construction. 

At the center of the subdivision is its award-winning elementary school. Briargrove Elementary has tremendous parent and resident participation in its scholastic and social events. The school was upgraded to a modern facility during 2004-05 and reopened during the 2006-07 school year. The new multi-level building is furnished with a security system, wireless computer access, large screen digital monitors, a new phone system, and a new computer lab. Many of the old school’s landmarks are preserved including the park area and trees and the well-known mural from the entrance hall. 

Briargrovealso has a community center with a pool and recreation facility offered to all residents. It includes an amazing pool, which has been known for holdingswim team competitions and birthday parties. 

Briargrove subdivision has retained a 1950’s sense of neighborhood and neighborliness, which, in addition to its fine school and central location, contribute to the neighborhood’s popularity.

How may we be of service to you? Please call our office at 281-497-4729, or email Victoria Springer at mailto:victoria@uptongray.com. We want to be your Realtor!

Bellaire

With its close proximity to the Galleria, the Medical Center and downtown Houston, Bellaire is a community that prospective buyers find irresistible. Recently experiencing a building boom, with older homes being replaced with new construction, Bellaire offers a diversity of residential choices for the new homebuyer. 

Bellaire had it’s first burst of growth in the 1940’s and by 1950, there were over 3,000 homes with that number doubling during the next ten years. Bellaire’s physical boundaries were gradually extended, one-half mile at a time. During 1949, the city of Houston annexed the land on three sides of Bellaire and West University formed the fourth boundary, thus eliminating any possible plans for Bellaire’s future expansion. 

The construction of Loop 610 had a significant impact on Bellaire.

One thing all residents agree on is that Bellaire is a grand place to live. Quiet neighborhoods, excellent libraries, parks and recreational facilities, award-winning schools make Bellaire one of Houston’s most desirable areas. When the city changed its long-standing no-growth building permit process in the 1980s, a building boom occurred. Builders flocked to Bellaire and purchased small, post-World War II housing to tear down and rebuild. The result is a divergence of architectural styles with spacious homes on large lots. Home prices begin in the $200,000s for lots and range to upwards of $2 million for recently constructed homes. 

Bellaire combines the charm and ambiance of a warm, small-town setting with extraordinary amenities, big city conveniences, and an accessible location. Residents agree that Bellaire is truly an outstanding community in which to raise a family.

How may we be of service to you? Please call our office at 281-497-4729, or email Victoria Springer at mailto:victoria@uptongray.com. We want to be your Realtor!

Tanglewood

Tanglewood is one of Houston’s most exclusive and desirable neighborhoods with a charming architectural mix of spacious updated California Ranch homes and magnificent recently built Traditional, Mediterranean and Contemporary-style residences. In1949 seven beautiful new homes were ready for the grand opening of Tanglewood. The homes were built to take advantage of the newly popular Houston lifesaver – air conditioning. In fact, the new Tanglewood had the distinction of being the most air-conditioned subdivision in the Southwest. Since most of the land was open prairie, each home site was planted with two large oak trees plus three oaks added on every corner. As a result, Tanglewood is now one of Houston’s most beautiful wooded areas. The Tanglewood Homes Association rigidly enforced 

Tanglewood’s deed restrictions. These included front and sideline setbacks for every home. Prior to any construction, plans had to be approved by an architectural control committee. 

The original ideals and restrictions of the developer are still carried out by the Tanglewood Homes Association. 

In 1951, Tanglewood was recognized by the National Association of Home Builders in Washington, D.C. as one of the five best-planned neighborhood subdivisions in the United States. 

In 1954, the Houston Country Club purchased 150 acres from Tanglewood and an additional 125 acres from the Bering family. In order to have enough land for a golf course, an additional 25 acres were also acquired. 

Today Tanglewood subdivision consists of 1,052 homes in these 15 sections. Prices for building sites exceed $1 million; recently built homes range well into the multi-millions.

How may we be of service to you? Please call our office at 281-497-4729, or email Victoria Springer at victoria@uptongray.com. We want to be your Realtor!