By Laura Kusisto And Kris Hudson
HOUSTON--Home sellers are slashing prices and offering
incentives to keep buyers from walking away from contracts as an
18-month oil slump buffets this city's once-booming housing
market.
Home-construction permits in the area plunged 26% from a year
earlier in the third quarter, while December sales of existing
single-family houses fell nearly 10% from the same month of 2014,
according to data from the Commerce Department and Houston-area
brokers.
Builders are hustling to reverse declining sales and rising
cancellation rates by beefing up incentives. KB Home in October
advertised homes in several of its Houston developments with price
cuts of up to $31,000 and commissions available to buyers' agents
of $2,000 to $10,000.
Overall, the area's average single-family home price was down
about 7.5% to just over $280,200 in December from its June record
high, according to the Houston Association of Realtors. Even the
high end is hurting: The average sale price for luxury homes,
defined as the top 5% of the market, fell 5% to $1.3 million in the
fourth quarter from the same period a year earlier, according to
real-estate brokerage Redfin.
Behind the slump is the plunge in oil prices from close to $100
a barrel in August 2014 to about $29 Monday.
"While Houston has figured out how to diversify [its industry
makeup] a lot, we still are an oil-and-gas city," said Scott
Merovitch, Houston division president for closely held builder
Chesmar Homes LP, which saw a higher cancellation rate in Houston
in 2015 and notched 20% fewer sales. "We're going to ebb and flow
with oil and gas."
Across the country, regions where housing markets rode the
energy boom look shaky. Home prices in North Dakota are 22%
overvalued, while the figure in Texas is 15% and Colorado's prices
are 10% too high, based on the historical average ratio of prices
to incomes, according to Arch Mortgage Insurance Co.'s Housing and
Mortgage Market Review.
Oil prices tripled between 2009 and 2014, helping Houston
outpace every other U.S. metropolitan area in home construction in
the period. Prices for existing Houston homes rose 37% since
2011.
The first sign of trouble came in mid-2014, when oil prices
began their decline. Houston's home sales managed to sustain their
momentum until this past summer, when news of the Iran nuclear
accord spurred concerns of increased Iranian oil production adding
to a supply glut. At the same time, big Houston oil-and-gas
employer ConocoPhillips warned workers of layoffs.
Olu Fagbemiro and her husband were concerned enough about
instability in the industry to demand a price cut on the home they
were under contract to buy. Ms. Fagbemiro, a consultant and
engineer for the oil industry, and her husband, an accountant in
the industry, in October got Keystone Classic Homes to cut $14,000
from the price of their three-bedroom home under construction near
downtown Houston, to $621,000.
Ms. Fagbemiro said her husband's job isn't in peril, but they
believed the industry's struggles were reason enough to
renegotiate. They "had information on companies laying off people,
and we thought the [housing] market will continue to stay stagnant
for quite a bit of time," Ms. Fagbemiro said.
Michele Marano, a Houston real-estate agent who specializes in
oil-and-gas clients and worked with Ms. Fagbemiro, said "my buyers
have completely backed off." She added, "I have an enormous number
of buyers but they're sitting."
Few neighborhoods illustrate Houston's slowdown as dramatically
as the communities that sprouted since 2011 around the site of
Exxon Mobil Corp.'s 385-acre campus just north of Houston. Roughly
10,000 workers, most already living in Houston, moved to the campus
as it opened in phases in 2014 and 2015. Developers readied
thousands of lots for upscale houses in anticipation of a flood of
oil executives moving to the area.
Now, unsold homes sit near the Exxon Mobil campus, with the
supply of so-called speculative houses there exceeding the
metropolitan area's average since the second quarter of 2014,
according to housing market researcher Metrostudy, part of Hanley
Wood LLC.
The higher end of Houston's market has been hit especially hard.
The number of unsold lots for homes priced at $400,000 and up has
ballooned, said Lawrence Dean, a Metrostudy senior adviser in
Houston, who estimated it will take three to four years to exhaust
the supply.
Likewise, the number of homes listed at $1 million or more rose
54% in the third quarter from a year earlier, according to Redfin.
The surge allows buyers to be more selective and forced some
sellers to cut prices.
Gary Sova and his wife, Beth, were able to negotiate a roughly
$140,000 discount on a home in the $1 million range in the
Woodlands, near the Exxon campus.
Mr. Sova, a 62-year-old executive in the waste and recycling
business, said the market shifted significantly in favor of buyers
from when they started looking in February with their real-estate
agent, Amy McGee, to when they bought the home in early November.
He said many buyers were selling because they had lost jobs or were
relocating.
Agents started to say "just make me an offer." That never
happened at the beginning of their house hunt, he said.
"I think this oil thing has spooked people a little bit," he
said.
Write to Laura Kusisto at laura.kusisto@wsj.com
(END) Dow Jones Newswires
January 18, 2016 19:51 ET (00:51 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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