Prices for new homes dip as builders face weaker demand

The average price of a new home in the Houston area fell during the first three months of the year, the first such dip here since 2009 during the last national recession.

The 1.2 percent drop, to $363,473 from $367,999 in the final three months of 2015, represents an overall moderation in prices in a market that had been climbing for several years before oil prices collapsed, new housing data show. The average sales price is still 1 percent higher than it was a year ago.

Builders who had been dashing to put up as many new homes as possible are now facing weaker demand as upstream energy companies continue to slash jobs and cut spending. But if the price of oil stabilizes this year and rebounds to at least $55 a barrel next year,

the local home building market could avoid an especially painful downturn, said Lawrence Dean, Houston regional director of Metrostudy.

“I want to keep a close eye on the announcements of further layoffs in upstream energy planned for the rest of this year,” Dean told local home builders during an appearance at Lakeside Country Club. “Right now I’d cautiously say we might just come out unscathed.”

The last time the quarter-over-quarter average price of a new home declined in Houston was in mid-2009.

In the far larger market for existing single-family homes, sales were up slightly through the first quarter. But sales figures have seesawed for months, reports the Houston Association of Realtors, which tracks properties sold through the Multiple Listing Service across greater Houston.

The resiliency so far is likely a result of pent-up demand from recent years when prices sky- rocketed amid low supply levels keeping many would-be buyers out of the market.

Almost 16 percent of the MLS sales in March were new homes.

Robust high-end home buying that drove Houston’s searing growth in prices during the real estate boom has been weakening along with oil prices. Inventory of those pricey properties now represents a weak spot.

Luxury home site scrapped

Houston-based Butler Brothers, a luxury builder that develops in upscale, urban locations, began initial development work on a site it had acquired near Memorial Park for a collection of luxury homes planned with price tags of more than $1 million.

But the company sold the property about a month ago and is now focusing on its other projects, which include a high-end development near River Oaks and another in Spring Branch. The latter has “definitely been a project that has slowed down,” said the company’s Scott Butler, citing low oil prices and its loca- tion on the west side of town.

Chris Simmons started looking for a new house last year when he felt the market was beginning to slow.

“I knew I’d be able to negotiate some discounts,” he said.

In March, Simmons closed on a two-story, 4,000-square-foot home in Woodtrace, a community north of Tomball. His builder ponied up $61,400 in incentives on the house, which was in the high $400,000s.

Simmons has seen the energy slowdown firsthand.

He works in purchasing and supply chain management for a construction and engineering company and oil and gas supply company, both owned by his parents.

For months, Houston has been losing manufacturing and highpaying jobs in the upstream energy sector. While other industries like hospitality and retail have been growing, those workers are less likely to be homebuyers than those with jobs in professional services.

Historically, the “sweet spot” for housing in Houston is when oil is between $55 and $90 a barrel, Dean said. Generally at those prices, jobs are plentiful and gasoline prices aren’t too high as to affect consumers’ homebuying decisions.

Slower sales pace

Metrostudy data show higher levels of new home inventory in market areas it refers to as far north, northwest and west/ southwest. That includes Katy South, east of Interstate 45 and the FM 2920 corridor.

First-quarter residential land sales in Bridgeland and The Woodlands, two major communities in the northern region, were slightly lower compared with last year due to “home builders’ continued cautious management of land inventory levels given the Houston economic uncertainty,” according to a financial document filed by the developer, publicly traded Howard Hughes Corp.

While the softer parts of town might be experiencing a slower sales pace, they aren’t likely to free-fall.

Builders may have developed “too much too quickly,” but “unlike the last market cycle, these are areas that have the right fundamentals,” Dean said, referring to such factors as highly rated schools and nearby retail and services.

Across the area, the supply of lots ready for home building has been creeping up over the past few quarters, but it remains just below the 20-month supply metric where the market is considered in equilibrium.

During its recent housing heyday, Houston was the top home building market among the nation’s top metro areas.

Its now ranks No. 2 behind Dallas-Fort Worth.

Ralph McLaughlin, chief economist with Trulia, a national real estate firm based in San Francisco, said the local supply rush during the boom combined with low oil prices could lead to further price softening.