Homebuyers appear to be in waiting game
Sales of newly built homes were off sharply in September, according to report on Houston-area market
Sales of newly built homes in the area were off sharply in September, with the number of closings falling 27 percent.
Builder Gary Tesch senses a growing economic skittishness in some of the Houston neighborhoods where his company builds houses.
Prospective buyers, he said, are visiting model homes three or four times before signing a contract.
“The buying process has elongated for the buyers out there today,” said Tesch, president of McGuyer Homebuilders. “There’s competition. There are choices. There’s opportunity out there for buyers. They’re seeing the headlines of what’s going to happen in Houston and oil prices. They’re thinking, are they better off waiting or pulling the trigger?”
Compared with this time last year, many seem to be waiting.
Sales of newly built homes were off sharply in September, with the number of closings falling 27 percent from 2014, a monthly report from housing research firm Metrostudy shows.
The data are based on a survey of 23 homebuilders, which account for about 65 percent of the new single-family housing activity in the Houston market according to third-quarter starts activity. Based on that percentage, Metrostudy estimates that builders in the greater Houston area sold 1,498 homes in September.
“This is kind of the sign the market has peaked and we’re on the downward
slope of that peak, but we’ll still be able to sell lots of houses,” said Scott Davis, Metrostudy’s Houston regional director, adding that closings for the year are flat.
Across the Houston area, builders constructed 15 percent fewer spec homes in September compared with the same month a year earlier, according to Metrostudy. Spec homes are those that break ground without buyers in tow. The inventory of homes sitting finished and vacant was up “a shocking” 38 percent over last year, the firm said.
In another indication of the slowing market, the average cancellation rate jumped to 26 percent in September. A cancellation is when a buyer backs out of a contract before closing. Typically, the cancellation rate is below 20 percent.
Davis said the market is about nine months into a slowdown, which would have happened even without falling oil prices because it has largely been driven by prices and supply.
Steep price increases for new homes pushed buyers to the existing home market. The median price of a new home, Davis said, is about $70,000 higher than an existing home.
“We’re seeing declines in our starts and we’ve seen pricing that’s really gone through the roof. If we can bring our pricing in line, I don’t think it’ll be a real significant downturn at all,” Davis said.
Amy Rino, Houston division president of Darling Homes, said buyers are a little spooked about what they’ve read and heard about the economy and oil prices, but traffic is still strong in the local master-planned communities where her company builds.
Though employment growth across the area has fallen to a fraction of what it was during the recent energy boom, and thousands of energy workers have lost their jobs, economists predict the region still will gain 20,000 or 30,000 jobs by year’s end.
“If anything, buyers are just taking a little more time to move forward,” Rino said.
Builders are adjusting their production and offering specials to unload inventory.
David Weekley Homes recently promoted a $30,000 “decorator allowance” on some of its homes in Cinco Ranch that sold for $350,000 and up.
Through the end of the year, McGuyer Homebuilder brands Coventry Homes and Plantation Homes are offering buyers up to $50,000 toward closing costs or upgrades when buying a recently completed or under-construction home in communities throughout this area.
Tesch said it’s not uncommon for builders to have year-end sales.
“We’re not doing any bigger promotions we typically do,” he said. “We don’t have a ton of inventory sitting on the ground.”
Tesch said traffic among the company’s local model home parks is up compared with last year in new communities like Pomona south of town.
Overall, the company’s sales in Houston are down between 10 and 15 percent from 2014. Some of that, though, could be from fewer lots available to build on.
“It’s taking longer due to the weather, financing, permitting, all that is compounded,” Tesch said. “It just takes longer today to get lots on the ground.”
Another concern going into next year is the presidential campaign.
“I feel really good of how we’re positioned for 2016,” Tesch said, “but obviously there’s a lot of static out there about oil prices and what that means for Houston. And it’ll also be an election year, and usually in election years ... there’s static as well, which usually hurts consumer confidence.”