Homes sales posted another positive month of growth in Houston in April. Sales volume of single-family homes rose approximately 3 percent, while sales of homes in the Katy area rose by double digits. The increase in sales volume in April was once again boosted by better new home sales in Houston, and a sixth consecutive month of higher luxury homes sales (priced at $750,000 or higher).
HAR data show that the median price of a Houston home rose to a new April high of $228,000. The average price of a Houston home rose to $291,770, also a new April high. By most measures it was a good month for sales, and if you believe the headline numbers you might be fooled into thinking that home prices in Houston are rising this year. Unfortunately there is more to the story in today’s bifurcated, Fed-manipulated housing market than meets the eye.
While one of Canada’s largest mortgage lenders, Home Capital, is dying a death of a thousand cuts as the Canadian housing bubble is exposed for the entire world to see, things here in Houston Texas continue to slog along. Good homes are still selling, particularly in the lower price bands. At the opposite end of the spectrum you have a number of luxury property sales that are also changing hands. In the middle, in the heart of the Houston housing market, the mean reversion is still alive and well.
Throughout Houston you can see price reductions on more expensive homes, homes that probably would have sold in a matter of days during the mania of 2014. Many of these homes are now languishing in the market as the pool of available buyers in the $400,000-$750,000 range becomes increasingly skittish about the prospects of asset price deflation. The caution is warranted considering there is still another shoe yet to drop in this Ponzi economy being levitated by the Fed and global central banks’ collective purchases of assets.
While some systemically important “constituents” may be eager to trade favors and visa approvals so they can sell more luxury condos, there are still millions of real Americans who would simply like a nice affordable home to live in. The latest stats from April show that this is becoming more challenging even for Houstonians, as the lower bound/margin creeps higher due to continued investor activity. The problems surrounding the lack of affordable housing are only increasing.
Outside of the posh luxury condos and affordable first-time fixer-uppers, the actual prices of Houston area homes are still correcting. You just have to look behind the headlines to see what many sellers already know…luxury homes in Houston are are not such a hot ticket item with oil below $50. To point out how the headline data are masking the real underlying trend, I will show you in two simple charts to explain what’s really going on. As it turns out, Katy’s favorite master -planned community provides the perfect example.
Last year Cinco Ranch saw no luxury home sales above a $million in April. Last month there were actually two closings at a $million or more. Looking at a the raw numbers you might be fooled into thinking that home prices in Cinco Ranch were rising this year.
Watch what happens, however, when I take out those two $million-plus home sales in April and make the comparison to April 2016 more realistic. Taking out the two unusual closings, we get a glimpse at the other 80 transactions that point to continued price compression. Absent these two ultra-luxury suburban property sales, there wasn’t another closing in Cinco Ranch during the month of April above $650,000. In the heart of the market, the mean reversion in prices is continuing to take shape.
The unfortunate truth is that most Houstonians are seeing little if any real wage growth, while real inflation is dramatically understated. Houston employees will see even weaker wage growth if oil prices can’t hold above the $50 mark. At a time when home prices are still ratcheting higher at the margins, the real market in the middle continues to struggle. That’s probably because there has been no real wage growth for most Americans since 1988!
Not surprisingly, Houston area renters are “having a field day” with the owners and developers of many of the new luxury apartment projects. The occupancy rate for Houston apartments dropped below 92% in the first quarter of 2017. The latest numbers show that the average rent for a single family home in Houston dropped by almost $100 compared to April of last year even though leasing volume was up by 14 percent.