Big Real Estate Correction Coming - Perfect Storm (Houston, Katy: 2015, loan)

[cheryjohns]

Originally Posted by diggity101

Again, this isn't bearing out in real life transactions.

There isn't this glut of wealthy Mexicans that are ignoring the market trends and throwing bags of money at any old house. There are many areas like the Woodlands and parts of Sugar Land that are very hot and are receiving multiple offers. Wealthy international buyers that can pay cash are certainly at an advantage in these situations, but they're not just throwing out crazy offers for the hell of it.

They're paying what is necessary to get the house and when you have a bunch of offers, you're not going to be able to negotiate down.

This, too.

On a side note, there must be something in the psyche of certain people who like to induce panic and doom-say. I remember people who were screeching evacuation with Hurricane Rita, when Mayor White was trying to calm people down. The people who suffered were those that gave in to the panic. The ones screeching had a weird sort of glee - what in the heck is up with that behaviour? Maybe Dr. Phil can help.

[lhafer]

Originally Posted by cheryjohns

This, too.

On a side note, there must be something in the psyche of certain people who like to induce panic and doom-say. I remember people who were screeching evacuation with Hurricane Rita, when Mayor White was trying to calm people down. The people who suffered were those that gave in to the panic. The ones screeching had a weird sort of glee - what in the heck is up with that behaviour? Maybe Dr. Phil can help.

Eh, it's like the weatherman when he gets that manic gleam in his eye when there is ever the slightest rotation of clouds in the gulf. I don't get it either.

[AliefPropOwner]

Depends on the area. East and south sides of Houston won't be affected much from the upstream oil cuts, on the contrary, downstream refining aspects of oil business is still booming.

West, Northwest, and North will see problems. East, Southeast, South will barely see a hiccup.

Originally Posted by jradMIT

My opinion of course, but I am(was) in the market to buy a house. I might sound a little like chicken little here, but it seems to me that there is a perfect storm brewing for a major real estate correction in the city. I think if your thinking of buying you might want to become much more selective or wait 6 -12 months if possible. Let me summarize my overall why I think prices will fall back to prices seen in the mid 2000's and there will probably be many homes going for lower than market value prices. Here are the reasons I see

1. Dramatic rise is prices is the recent past- Over the last two years prices have run up very nicely.
2. The rise in prices in turn caused tons of construction and real estate investment, it seems everywhere you look, you see apartments/condos/houses being built. Basically there is a large of supply of new real estate that is coming on the market.
3. Drop in Oil prices dramatically and quickly- The price of oil essentially took a nose dive with no warning. Very quickly we are at sub $40 dollar a barrel oil, it happened so quickly that people really couldn't adjust. Also there was alot of false optimism and disbelief, most people thought after the initial drop that prices would at least be in the 60-70 range and that it was temporary. Not looking that way now, Saudi is flooding the market trying to break producers, until they are broken this goes on. Could be years (gulp).
4. Layoffs - many energy and oil service companies have already had round(s) of layoffs, more probably in the future if prices remain under 40-50. Your talking about over 100,000 high paying jobs eventually. I work for Chevron, they started a project aimed at making recommendations of cutting costs in the beginning of the year, the results were finally released recently and its about 1500 jobs, most likely there will be another project next year to do the same, and so on. The city's economy is supposed to be differentiated since the bust in the 80's and we will soon find out, but what drove the previous boom? Energy and Oil jobs were the primary cause. The economic effect is lagged too, last year's layoffs are felt today. Next year the effects will start to be seen.
5. Irrational Exuberance- I think many homes right now are being priced way too high, they haven't adjusted to the new reality. Owners want the pay day, agents and realtors don't want to be told the party is ending. This is going to aid the issue because homes that could be selling aren't, simply because they are overpriced. When the correction starts there will many homes that are on the market that would have sold 6 months ago at their current price. Also there are alot of small time real estate investors/flippers that have overextended themselves when prices drop they are going to hurt.


All in all, I think its a perfect storm so to speak, fast run up, increase in supply, loss of jobs very quickly. If it were more of a gradual change the market could have adjusted in a smoother fashion. But this will be an abrupt, and the abruptness will create some real good buying opportunities.

[rjj42]

Originally Posted by cheryjohns

Way too much logic in this post. Much more fun to scream "BUBBLE" and "Doomsday approacheth!".

Add to it the fact that we must have the toughest appraisers in the world - only allowing value to be raised in increments at a time - and you see why we have never had an artificial bubble. The true price correction was when housing prices went up. There was a lot of froth in some markets, but it is settling down - and settling down does not mean the bottom will fall out.

I don't understand why some people view housing separately than everything else. When bread goes up, milk goes up, everything in the world goes up - why would housing costs remain the same? However, it seems there are some that expect it to do that.

I think another piece of logic that is missed amongst most people who I see discussing the future of Houston real estate is how local areas within the city are affected differently.

[diggity101]

That's a great point. There are certain areas that are most likely always going to be desirable and sought after.

People waiting/hoping/praying for deep discounts in West U or The Villages are likely going to be disappointed. That's not to say that prices cannot or will not flatten or drop at all. I just don't see a scenario where you'll see a 10% "correction" in the most popular neighborhoods. There's a small supply and a huge demand, even in tough times.

More transitional areas that don't have natural pro's like: desirable schools, proximity to CBD's/city life/shopping & restaurant districts etc. are typically the ones that will suffer when you have a market shift.

[rjj42]

Originally Posted by diggity101

That's a great point. There are certain areas that are most likely always going to be desirable and sought after.

People waiting/hoping/praying for deep discounts in West U or The Villages are likely going to be disappointed. That's not to say that prices cannot or will not flatten or drop at all. I just don't see a scenario where you'll see a 10% "correction" in the most popular neighborhoods. There's a small supply and a huge demand, even in tough times.

More transitional areas that don't have natural pro's like: desirable schools, proximity to CBD's/city life/shopping & restaurant districts etc. are typically the ones that will suffer when you have a market shift.

Yes, I agree. I think people looking to buy in the Energy corridor area (west of Beltway 8 and I-10 intersection) maybe able to find homes with 'corrected' sales prices later on this year or early next if the oil prices stays low for long and if layoffs continue since that part of town I feel will be disproportionately affected. I don't know if that part of town can be classified as 'transitional' exactly as they still have desirable schools/proximity to shopping, restaurant districts, etc but house prices may still be affected.

[marksmu]

Originally Posted by diggity101

That's a great point. There are certain areas that are most likely always going to be desirable and sought after.

People waiting/hoping/praying for deep discounts in West U or The Villages are likely going to be disappointed. That's not to say that prices cannot or will not flatten or drop at all. I just don't see a scenario where you'll see a 10% "correction" in the most popular neighborhoods. There's a small supply and a huge demand, even in tough times.

More transitional areas that don't have natural pro's like: desirable schools, proximity to CBD's/city life/shopping & restaurant districts etc. are typically the ones that will suffer when you have a market shift.

The villages are seeing some growing pain right now....The average new price on homes in the villages has exceeded $2,500,000 and as a result of that there is now a glut of new homes and resale homes in the villages above $3,000,000.

This time last year, there were not many available homes and even the $3,000,000 ones sold quickly...now however, the $2,000,000+ properties are lingering...some in excess of 6 months.

[daphne326]

Exactly. I noticed more "lingering time" for $1 million-plus (even $800,000-plus) West Memorial houses too.

Originally Posted by marksmu

The villages are seeing some growing pain right now....The average new price on homes in the villages has exceeded $2,500,000 and as a result of that there is now a glut of new homes and resale homes in the villages above $3,000,000.

This time last year, there were not many available homes and even the $3,000,000 ones sold quickly...now however, the $2,000,000+ properties are lingering...some in excess of 6 months.

[LocalPlanner]

People need to be conscious of the distinction between "returning to 'normal/average/non-insane'" and having a real "correction". The past 3 years have been exceptional in many Houston-area neighborhoods. Inventories were ridiculously low, price appreciation was way above normal, time on market was practically nil. In other words, NOT NORMAL and honestly NOT HEALTHY for Houston, as one of our traditional selling points is the ease of finding a nice reasonably-priced home. So if a home sits on the market for an extra month or two above what had been the cast in 2013-14, that's not necessarily a bad thing. If someone is so hot to sell that they can't be patient, then they should lower their price.

[diggity101]

my point is that sales prices aren't all of the sudden going to return to 2010 levels in the good areas. There are many reasons for this.

I agree that the rapid appreciation we experienced over the past couple years was not sustainable or healthy, so I am glad that things have leveled out. Especially since about 80% of my business is buyer side.