Rapid home construction in the Greater Houston area has started to slow as homebuilders adjust to a dip in new home purchases over the past 14 months—in part because of the oil and gas industry slowdown.

Previously the top single-family housing market in the U.S., the Greater Houston area fell behind the Dallas-Fort Worth market early this year, according to Metrostudy—a nationwide real estate research company. The Houston market had 27,263 new homes under construction during the first quarter of this year—down 3,089 from the same time period in 2015.

Similarly, the Conroe, Montgomery and Willis area saw a decline in new home construction during the second quarter of this year. The region saw 495 new homes under construction during those months—down 202 homes from the same time period last year.

Metrostudy-Houston Regional Director Lawrence Dean said high population growth projections had led to rapid home construction since 2012 in Conroe, the FM 1488 corridor, and the I-45 corridor in Montgomery and north Harris counties.

However, the oil and gas industry slump has caused population growth to fall short of projected totals, leaving a notable amount of home inventory unsold.

“We built a lot of new communities with the goal of capturing some of the people that would be relocating to work at the new ExxonMobil campus, but that has not materialized in the volume that we thought it would,” Dean said. “While the new home market is still going strong, we probably built too many new subdivisions and too many lots at the same time. It will take a little bit longer to build and sell the homes than we thought.”

Housing market looks to stabilize

Housing market demand


Although shifts in the market have not affected ongoing home construction, Dean said developers are taking longer to sell new homes. He said demand for moderately priced starter homes has driven growth in the market for homes priced at less than $300,000, while demand from homeowners looking at higher price points has tapered off.

“It has been a pretty significant shift in the market,” Gracepoint Homes President Tom Cox said. “The buyers that are above $450,000 are very discretionary buyers, and they are in a significant holding pattern right now.”

In north Montgomery County, 1,272 new homes, or 45.6 percent, built since June 2015 were valued below $300,000, according to Metrostudy.

“From late 2011 to today, the industry focused on move-up homebuyers,” Dean said. “They are bigger and more expensive homes. That made it very competitive for homebuilders because suddenly they were trying to offer that same kind of product.”

Dean said Conroe, Montgomery and Willis can better accommodate homebuyers in different price ranges compared to the majority of communities throughout the Greater Houston area. In Conroe, he said builders have had success with homes valued between $180,000 and $280,000 east of I-45 as well as homes valued between $275,000 to more than $1 million west of I-45.

However, the Conroe-area market is lacking in new homes below $200,000, The Woodlands Realty Realtor Marisol Luyckx said. There were 235 new homes built and only an additional 97 homes already available at that price point between July 2015 and July 2016, according to Metrostudy.

“Even around $250,000 you are getting up there in price,” Luyckx said. “I would like to see more builders build in the lower price point to allow more families to move into the community.”

Additionally, homeowners who are looking to sell their homes are having a difficult time in the current market because homebuilders offer incentives to sell their inventory, such as paying bonuses to real estate agents and covering closing costs for homebuyers, Luyckx said.

“Homebuilders give a significant amount of incentives to real estate agents as well as buyers, so it is difficult to compete when you have a home for resale,” Luyckx said. “That is when you know that [builders] are desperate to get rid of their inventory. If [homes] were selling quickly, they wouldn’t offer those things.”

New home construction


To address concern about the housing market, homebuilders are adjusting the price of homes sold in the region by offering smaller homes with fewer amenities.

Cox said Gracepoint Homes is designing smaller homes that will be introduced into communities throughout the Greater Houston area over the next three months. The company has built customizable homes throughout Houston since 2006, including Conroe, Montgomery and The Woodlands. The company’s homes range in cost from $300,000 to more than $1.5 million.

“Our adjustment has been to move our average price point down,” Cox said. “In doing that we are designing new product that offers smaller square footages, which ultimately leads to smaller lots.”

Cox said homebuilders are also adapting already purchased lots originally intended for 3,000- to 4,000-square-foot homes and instead building 2,400- to 3,000-square-foot homes with fewer amenities to drive down the cost for homebuyers.

Consequently, he said community developers are having a more difficult time selling lots larger than 65 feet in width—which typically feature homes priced above $350,000.

“All of their designs on new product lines that are coming out are smaller lots,” Cox said. “We are also starting to see the 40-foot lots in the market again. We haven’t really seen those since 2004-2006.”

Sterling Classic Homes President Tom Neyland said his company is building luxury custom homes in the Woodforest community priced in the $2 million range. The homebuilder currently owns four lots but  Neyland said the company plans to expand its offerings to about 15 custom homes in the near future. The company also offers homes in The Woodlands and Sugar Land.

Although the market for high-priced homes has softened, Neyland said Woodforest and similar communities offer high-demand amenities, such as golf courses, resort-style swimming pools and wooded landscape that remain available for development in the Houston region.

Additionally, he said growth in the health care industry—such as the opening of the Houston Methodist The Woodlands Hospital and Texas Children’s Hospital The Woodlands next year—and the availability of wellpaying jobs in other sectors continues to make Montgomery County an attractive option for homebuilders.

“Usually when the oil industry goes down, you have to look at your doctors, lawyers, small-business owners, bankers, aerospace guys, computer guys, restaurant franchises and retirees,” Neyland said.

Still, homebuilders anticipate the housing market to recover in the coming years. Dean said Metrostudy projects a 10 percent decrease in homes sold in 2016 compared to 2015 and an additional 3-4 percent decrease in 2017 from 2016 totals before the market begins to recover in 2018.

“The whole oil industry is learning how to earn money at lower prices,” Cox said. “Historically, oil comes back quickly when it starts happening, and we feel like that is ultimately going to happen.”