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The Impact of Low Oil Prices on Houston Single-Family: Q&A with Mario Arriaga, 2016 Chairman Houston Assn. of Realtors

Mario A. Arriaga, the 2016 Chairman Houston Association of Realtors.

Mario A. Arriaga, the 2016 Chairman Houston Association of Realtors.

HOUSTON – With oil prices on an almost daily decline, these are trying times to be in the real estate business. The Houston real estate market has changed, as has the city’s number one industry – energy.  Falling from more than $100 a barrel to less than a third that amount today, the price of oil is hitting low prices not seen in decades. That is having a substantial effect on the real estate market. To find out how dramatic the change has been, Realty News Report talked with Mario A. Arriaga, the 2016 chairman of the Houston Association of Realtors. Mario brings more than 40 years of real estate and banking experience to his new position. Specializing in commercial real estate, Mario is broker/owner of the First Group, which he co-founded in 1974. A native Houstonian – he was born downtown at St. Joseph Hospital — Mario was valedictorian at Milby High School and studied electrical engineering at the University of Houston, where he graduated magna cum laude.

Realty News Report: The HAR year-end report shows 2015 was the second-best year ever for Houston home sales. Why was last year so strong, for the most part?

Mario Arriaga: We had good job growth last year and there was increased population migration to the city. Our inventory was still tight. Even into the early part of 2015, we were seeing multiple offers on home as soon as they came on the market. Interest rates stayed around the 3.75 – 4 percent area; the Federal Reserve hadn’t started gradually raising them yet. Consumer confidence was there still and the impacts of the oil and gas downtown weren’t being felt. There were no job layoffs reported. Our number of sales and transactions in 2015 were one of the best years we had in eight years. 2014 was a record-breaking year and 2015 continued that trend. But that was when oil and gas was operating near $100 a barrel.

Realty News Report: What are your expectations for the Houston housing market in 2016? Robust? Steady? Normal

Mario Arriaga: Cautiously optimistic.  Houston is still a healthy market, but over the past year it’s become a more stabilized one, pulling away from being a seller’s market and turning into a more neutral one. In some neighborhoods, it’s starting to become a buyer’s market. The dynamics have changed. There is no question the market has changed.  Markets do that. Today we’re not seeing the multiple offers once a home has been put on the market. The market is more normal.  Because last year was a record year, we’ll probably see fewer sales in 2016. But keep in mind that we’re comparing it to two record sales years.

Realty News Report: Oil prices are at the lowest point in years, around $30 a barrel. What impact will this have on Houston real estate this year?

Mario Arriaga: I think the large effect it may have will be on consumer confidence. When people see a neighbor or a relative in the energy business lose their job, they start to wonder about their own future and may not take a step like buying a bigger or smaller house until the dust settles. People with children at college might say ‘I’m going to hedge my bet and downgrade” to a smaller home and that’s good. With Houston’s increased inventory, there is a better supply of homes available and that may be more attractive to a buyer who have been on the sidelines and didn’t want to be involved in a bidding war with four others on one house. That buying intensity has gone away, so this is a great opportunity to buy for those who been waiting. Buyers realize with this market, they are not going to see an 8 to 10 percent annual increase in home prices. As for where interest rates go, that’s anybody’s guess. But I think the good news, is that even if the Fed raises rates; it will be a gradual process. I don’t see any large increases for this year. The Fed said it intended to bump up rates a quarter percent every quarter or so. The question is, with oil and gas trending downward, will the Fed will continue to raise interest rates.

Realty News Report: The inventory of homes for sale has been low for several years. When do you expect the inventory of homes for sale become more plentiful?

Mario Arriaga: In our business, a lot depends on consumer confidence. In Houston, now there is a greater selection of homes; more product is available. Home inventory has increased from 2.5 months to 3.4 months. That means a better variety of homes to choose from. Rates are still low and we still have people moving to the area. There are buyers still out there.

Realty News Report: What will happen with home prices in 2016?

Mario Arriaga: Prices will stabilize. With the current economy, we’re not going to see home prices increase to the extent they had in the past couple of years. At the same time, we’re not going to experience a significant drop in home prices either.  Nothing like it was in the 1980s. In the ‘80s, all the rules went out window. Currently, we’re not oversupplied with homes. Homebuilders kept their eyes on the market to be ahead of the curve, so they didn’t overbuild. Now, some builders are starting to offer incentives to buy a home — a reduction in price or whatever.  Builders are buying lots from developers at reduced prices and passing those savings on to homebuyers. We’ll probably see a little bit more of that as the year goes on.

Realty News Report: Houston’s population is growing and that trend is expected to get stronger in the years to come. What are the big challenges facing Houston long term?

Mario Arriaga:  In my personal opinion: transportation. We have to stay ahead of the curve. People do not like spending an hour or an hour and a half commuting to work. Mobility is one of the key areas we have to address and I noticed that TxDOT is releasing more funds for infrastructure. That will help. We need to continue to continue to keep increasing mobility options to stay ahead of the game, whether it’s an elevated highway in the Galleria or along Loop 610. We need to be able to handle the influx of people expected to move to Texas in the future – and those already here.

Realty News Report: What are you telling the people who predict 1980s type of ‘doom and gloom’ for Houston?

Mario Arriaga: We are a much more diversified city than we were in the 80s. It’s different. Is growth slowing? Yes. Except for two sectors, Houston real estate is not overbuilt like the 1980s. There is now more Class A office space than users out there, so I think we’re going to see landlords offering incentives. Also, there is a lot of Class A multifamily product on the market and owners are offering some incentives to lease units.  But Houston’s industrial segment is strong, retail is respectable, and the land market is good. Homebuilders haven’t overbuilt so, really, a ‘doom and gloom’ scenario doesn’t seem likely for Houston this time. Houston today is much more diversified. The upstream oil and gas market is hurting, but the petrochemical sector is booming. On the eastside, we’re seeing billions of dollars in new petrochemical construction. That has helped offset the downturn in the oil and gas sector. Houston’s medical industry is expanding. There has been lot of medical activity and growth in the suburbs, too, where new hospitals have been built. Houston’s port is expanding. The widening of the Panama Canal is going to be a good driving force for new business at the Port. So today, some industries are offsetting the decline of the energy sector and it’s not having nearly the effect in the 1980s. People are still moving to Houston because it offers a widely diverse lifestyle. There’s a lot of growth in the suburbs. ExxonMobil has opened a three million square feet campus on the north side of Houston and on the south of the city there is growth, too.

Realty News Report: Anything else you’d like to add?

Mario Arriaga:  As I said, I’m cautiously optimistic. We have a stabilized market and I believe sales activity will be strong this year, but it probably won’t be as robust compared to the past 6-7 years. I think sales in 2016 are going to be in top 3-4 years of sales. Houston is not standing still.  We’re still planning for the future. The opening of Grand Parkway from US 290 to US 59 north is unlocking a tremendous amount of land for future development. Growth along the Grand Parkway is expected. It may be delayed a couple of years because of oil and gas situation, but it’s coming.  I compare today’s Grand Parkway to Beltway 8 when first opened 20 years ago.  Beltway 8 was just a concrete highway with vacant land all around.  You drive Beltway 8 today and the area is almost fully developed. That will happen too, on the Grand Parkway over the next 10-15 years. Houston is still a growing and vibrant city. Houston is a strong, robust city that is taking a breather. We may be pausing temporarily but we will come back even stronger.

Realty News Report is a Texas-based publication edited by Ralph Bivins.

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