Housing market’s high end is encountering headwinds
But builders say the demand for entry-level homes is high
AFTER years of red-hot growth, builders are facing a more moderate year for new-home demand, especially in the market’s high end, which was fueled by the now-buckling energy boom.
“We think it’s going to slow down a little bit,” housing analyst Scott Davis said, referring to homes in the $300,000 to $400,000 range. “We’re putting in a lot of product in that category. It’s probably the price range with the biggest exposure of energy industry professionals.”
While Houston-area buyers are being more cautious before jumping into home purchases, the market is still strong, Lennar president Richard Beckwitt said during a conference call with investors earlier this year.
The Miami-based builder kept its top position in the Chronicle 100’s list of most active builders in the Houston area ranked by 2014 closings. Lennar/Village Builders closed 2,319 homes in 2014. A year earlier the company sold and closed 2,229 homes.
Builders in the Houston area sold and closed 28,274 homes last year, 10 percent over 2013, according to Metrostudy, which compiled the list.
Lennar’s Houston-area properties had “good traffic in all price points,” during the company’s first quarter, which ended Feb. 28, Beckwitt said. But activity was stronger in properties priced less than $350,000.
“As you got above the $400,000, $500,000 price point, it’s slowing down,” Beckwitt said during the conference call, according to a transcript provided by Seeking Alpha.
Lennar posted 520 orders for new homes in the Houston area during the first quarter, down 7 percent from the same period a year earlier.
Davis, Metrostudy’s Houston regional director, expects builders to start between 28,000 and 30,000 homes this year. That’s down from an earlier forecast of 32,500 starts.
The softening is already
apparent. During the first three months of the year, Houston-area starts were off 6 percent and closings were down 3 percent from the same period last year.
Davis cited rainy weather and low inventory as other factors. The Dallas market experienced similar housing declines, he added.
Davis said he’s closely watching builders like D.R. Horton that have rolled out entry-level products that are now strong sellers as demand for higher-end homes tapers.
He cited D.R. Horton’s Express Homes, which is building homes from around $179,000 to $209,000 in Katy and southwest-area suburbs.
The demand for lowerpriced homes is so strong that “if we had more of that product we wouldn’t be seeing really any slowdown at all,” Davis said.
Lennar is also seeing strong activity in its lowerend properties.
“We can’t build the houses fast enough,” said Charlene Aulds, director of sales for Lennar Homes Houston.
Construction activity has been strong in north and northeast Houston near corporate facilities like FMC Technologies and Exxon Mobil.
“Energy is still having a positive effect in the real estate market,” Davis said, “and that northeast side of town is a great example.”
The smaller pool of buyers in the higher end of the market may be able to find some deals.
Builders have brought back promotions and incentives.
Conventry Homes and Plantation Homes, both part of McGuyer Homebuilders, recently launched a promotion offering to prepay two years’ worth of electricity bills to for buyers of their homes through June 30.
MHI homes, which can be found in more than 40 Houston-area locations, are priced from the $130,000s to more than $1 million.