The Stress Test of $50-$60 a Barrel Oil and Will This Time be Different

With experience, calmness persists in the Lone Star State

            As the country looks on to see if Houston can withstand the stress test of lower oil prices, many of us are unperturbed. We’ve been to this rodeo before. As one oil executive put it, “I don’t need to go to Las Vegas. I’m in the oil business. I live in Las Vegas every single day.” As for me (and I’m dating myself), I’ve been in real estate for over 28 years and remember well those crazy 80’s years. I’ve been through two recessions and two bubbles and made it out alive and intact.

But let’s back up a minute and look at this situation realistically. This isn’t another 80’s bust. The housing market back then had a financial foundation thinner than tissue paper. We had non-recourse loans, so if things didn’t work out, we could simply give back the property. Real estate was used as a tax shelter. Deals could be a losing combination of both. You held your breath and hoped for the best. It was like keeping your high school kid home from school for a month and crossing your fingers that everything was going to be okay.

Getting back to the present, when the numbers come in, sales for both November and December are going to be lower, we know that. But it’s not because of lower oil prices. It’s for a couple of reasons:

• 60% of all buyers in the Houston market (I did a very unscientific survey) are from out of state. These folks don’t move or look at homes during the holidays. They come in the spring. 

People from all over are beginning to understand that the economy has changed permanently. The ups and downs of the national economy is “the new normal.”  In Texas, it’s always been the norm!

In 2007 and 2008, it was the stock market that incurred massive injuries, yet Houston experienced only a sniffle. We’ve been through much worse than $50-$60 oil. We know that what goes up does come down, and vice versa.  Panic isn’t something Houston does—and it doesn’t need to. It’s sitting pretty as an economically stable place to live:

·      We’re still an in-migration state. People are moving into Texas, not leaving. Seven of the fifteen fastest growing cities are located in Texas.

·      #1 in job creation. Texas leads the nation in the creation of jobs; 40% since 2009. (If it slows down, we’ll still be happy. It would give us time to fix our roads.)

·      Minimal building. When oil prices go down, lenders get a little uneasy. Spec building comes to almost a complete halt. But on the bright side, this stabilizes the supply and demand sides of housing. Apartment building slows down. Yippee!

·      In Texas, your home will never be your ATM machine; there are no equity lines of credit. Easy money always ends up being bad money. Because Texans are not able to access our home equity with an ATM card, it is a bit more complicated than that.  It is a harder process so foreclosures stay down and our real estate market stays relatively stable.

·      People nest when there is change.  When you go to work and things aren’t so happy-go-lucky, you tend to stay put with your housing. So inventory will stay down.

·      Most people in the oil business saw this coming. And they’ve been talking about it for six months, so no big surprise or shock. They have remained calm.

            So take a deep breath and relax. We have traveled this road before and we know where it leads.

A new generation moving to the Heights?

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About two years ago, a friend invited me to a restaurant called Shade in the Heights. I hadn’t been to the area in probably 10+ years, but I’m always ready to try a new great restaurant—and what I found on that trip was an amazing, surprising neighborhood that would soon start attracting people from outside the loop.

Shade was fabulous. The design is sleek, and the atmosphere is casual, quirky, and elegant. Once inside, you can forget you’re in Houston and imagine you’re in Soho on a visit to New York. When we finished our meal, we walked down to the Penzey Spice Shop, where they had some of the coolest, best spices I’d ever seen. There I was able to buy a present for one of those friends who’s impossible to buy presents for; since she sprinkles crushed red pepper all over every dish, I bought her an imported spice that was 10 times spicier than what you’d find at the grocery store. I love the feeling of getting the perfect gift, and with that plus the food at Shade, I was hooked on the Heights.

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Recently, I’ve had three families from the Memorial area move to the Heights. They’re not empty nesters, and it made me realize that this shift was becoming a trend. For the last few years, national trends in everything from food to fashion to music have shifted from a corporate flashiness to a humbler and more hip aesthetic, and it seems that Houston is no exception. Farmer’s markets, Discovery Green, and now, formerly Memorial-based families moving to the Heights.

The Heights, with its mix of people and real estate (gorgeous, expansive homes next to run-down shanties), appeals to everyone. It has a small-town feel, yet it’s minutes from downtown. When Wal-Mart tried to open a store in this area, the community response would make you think that they were trying to build a nuclear power plant. Just like the West U community continues to protest with ever-increasing indignance against the Ashby high rise, the people of the Heights want to keep their local charm.

And why wouldn’t they? There aren’t too many places in Houston where restaurants are still locally owned, where the community braves the heat to hang out with each other outside. Food trucks, a trend that never left Austin, have come back to our city—a welcome reminder of my college days, where the third vendor on the drag would sell “lemony lemonade salvation sandwiches,” and one time the Vietnamese eggroll cart caught on fire and made the front page of the Austin statesman.

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Visit the Heights if you haven’t been there in awhile and it’ll feel like a breath of fresh air, a piece of carefree living straight out of your twenties. I recently went to a small restaurant called Zelko’s, where the food is sourced locally and the menu changes daily. The manager is a St. John’s alumnus, and one day he sat down at our table with the young chef Jamie and talked to us about food and wine for over 20 minutes. It’s so different from a lot of the other experiences you’ll have at restaurants in Houston. It’s personal, about making a memory and not turning tables. We finished our dinner, went over to a friend’s house, and sat on the porch with a glass of wine. Within minutes, some neighbors had joined us, and I ended up talking to someone who had left a big corporate job to start a music studio—and had been successful within 60 days! Where else but the Heights could you do this? Then, the neighbors from across the street came over from their relatively humble home and started talking about their son’s deployment to Afghanistan.

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Houston is a great city, but in a lot of neighborhoods, we lack the community and relaxation and personal connection that a small town brings. The Heights brings that back, and you can reclaim it through a day’s visit or maybe even a move. If you’re an empty nester or feeling a tug towards those college days where things were unexpected and not always so neatly packaged, the Heights might be the place for you.

Is inflation coming? Old money thinks so!

On February 21, 2011, a headline in USA Today read: “For the Wealthy, Luxury is Back”

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As a high-end Houston realtor with almost three decades of experience and a sharp awareness of the market, I would tend to say yes to the USA Today article. Judging by a recent housing trend initiated by Houston’s old money (or “dusty money,” as I like to call it)—we may be looking at some inflation in the market.

The dusty money is not interested in real estate speculation, and this trend is emerging across the country. All around America, people who are more dependent on portfolio returns than the ups and downs of the economy are buying big-ticket real estate as if a market reversal were in the works. It’s possible, of course, that these buyers are just seeing great values and taking advantage of them. But my instinct tells me that these buyers have seen this cycle before, and they’re protecting their money by investing it in assets that will appreciate.

It’s still nothing close to a bidding war out there, and the number of high-end real estate properties available is finite. But if you were to look at the big sales in River Oaks from 2010, you’d never know that real estate was in a slump. The difference in these sales is that the houses were priced not at bubble prices but at sensible market prices. This brought out the dusty money, a group that tends not to participate in market frenzies. Feeling comfortable in the current, realistic market—where marketing is done on the Internet and prices are solidly grounded in the interests of the consumer—the dusty money has emerged, tentatively heralding the beginnings of a real estate turnaround.

Hopes for 2011

What am I hoping for in the 2011 real estate market? Read on!

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I'm hoping that big banks will hire and actually train people to man their loan department. When you have a closing on the 30th of the month, they don't get to choose which month that will be in!! I sometimes wonder if they are all comatose. They need to get a few realtors in there to explain how they can make all these processes run more smoothly.

I'm hoping that when I say I am a realtor, people will not assume I was fired as a used car salesman and decided to take up real estate instead. If you're doing it right and working hard, this is a hard business!

I'm hoping that lending requirements will change only one time per year. No more weekly changes. Nobody seems to know what part of the government puts in the changes, and sometimes I think they are being made up by some group that wants to see what happens if you send out a bogus emails! Like the email from Nigeria with $1,000,000 in the bank! Could it be the same group?

I'm hoping that appraisers will actually turn down appraisals when they're not familiar with the area. When I had to give the appraiser from Sealy (nothing against Sealy) directions to Hunters Creek, well, I knew I was in trouble!!

Tanglewood: Free Tuition?

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Memorial and Tanglewood are similar neighborhoods, but right now Tanglewood has a record number of homes on the market and Memorial has low inventory. This is because out-of-towners (not having the private school option) move to Memorial rather than Tanglewood.

Something to think about-Tanglewood has some great values right now.  You can pay a lot of private school tuition with what you'd save by living in Tanglewood and there are plenty of good private schools! 

Buyers need to take a hard look at this. As soon as a few of these homes sell, the market will start moving.