Has Houston’s Luxury Market Bottomed Out Yet?

On the back of a sliding oil market, and with an oversupply of expensive properties, Houston’s luxury home prices may fall further before they bottom out. The world’s oil capital has a luxury market that’s been suffering since the price of black gold began crashing in 2014. While brokerage Redfin’s data showed that luxury prices—defined as the most expensive 5% of sales—fell just 1% on an annualized basis in the final three months of 2015, this masked large price cuts. In the city’s posh River Oaks community, for instance, laden with opulent mansions, the asking price for a 3.7-acre property called Bayou Breeze was cut by 27.5% to $14.5 million; in Hunters Creek Village, near Houston Country Club, a French-style manor house saw $200,000 chopped off its $5.5 million price tag. Some believe it’s a good time to shop. Paige Martin, a broker at Keller Williams in Houston, said, “Houston’s luxury market is starting to see a number of attractive deals that were not present at any point over the last few years.” Martin has seen a number of “forced sellers” in the luxury market, due to the downturn in the oil and gas market over the past two years. This is creating value for new luxury buyers. She is also seeing deals from sellers who are not publicly pricing their homes at lower prices, but are privately willing to discount their asks. But experts caution that, with so much depending on oil, it’s too early to tell if the luxury market has indeed bottomed out. “It depends on whether oil prices rebalance or continue to sink,” said Lawrence Yun, chief economist at the National Association of Realtors. “People do not want to purchase a depreciating asset. They want to make sure that, when they purchase, it’s close to the bottom... It’s still hard to know.” Toni Nelson, director of strategic initiatives at Gary Greene, explained that “2012 to 2014 were the go-go years for luxury real estate in Houston. Now that the energy industry is in a severe contraction, demand has slowed.” Nelson added, “As far as investors are concerned, I would not say that the luxury market has hit bottom. Price per square foot may fall further in that sector before investing becomes a good opportunity.” The price of oil is not the only factor at play; Houston has seen an increase in high-end inventory. According to Redfin, the number of million-dollar homes for sale in Houston surged 37% in the last three months of the year, compared to the same period in 2014. “For a city where the median sale price was $217,000 in December,” said Nela Richardson, Redfin’s chief economist, “that’s a sizable amount of new high-end housing for sale. This boost in luxury inventory likely dampened prices a bit.” View full listing (pictured top)