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Oil Pressure: Downturn in Energy Industry Pressuring Real Estate Prices in Some Sectors

HOUSTON – Houston’s real estate market has been moving down an uneven road. There are bright spots and black holes.
As we move into the fourth quarter, evidence is emerging that the spotty market conditions are putting downward pressure on real estate prices.
Matthew Deal of Deal Sikes & Associates

Matthew Deal of Deal Sikes & Associates

“Overall, Houston real estate has experienced a moderation in valuations over the last year. It is uneven, but the market for certain property types has slowed and some submarkets have weakened,” says Houston valuation expert Matthew Deal of Deal Sikes & Associates. “Properties must be evaluated on an individual basis. But, in general, we believe the era of skyrocketing values has ended in the Houston area.”

Data from HCAD – the Harris County Appraisal District – backs up that trend evaluation.
The taxable value of all property in Harris County increased 7.6 percent over the last year, according to the new 2016 certified appraisal roll compiled by the Harris County Appraisal District. Last year, the appraisal district reported a much higher 12.1 percent annual increase.
Of course, some segments of the commercial real estate market are deep in the doldrums, so there aren’t enough sales happening to produce meaningful comps. So it’s hard to get a clear read-out of current market values.
“A few years ago valuations were escalating rapidly while Houston’s economy was leading the nation. Some commercial properties, such as development sites in the city’s Inner Loop, were increasing more than 20 percent annually. That is definitely not occurring in 2016,” Deal said.

Job growth in southeast Texas has been sputtering, following a sharp drop in oil prices and layoffs at energy companies.  West Texas Intermediate crude fell from a high of $107 a barrel in 2014 to less than $50 a barrel in today’s market.

“Some property types, such as Class A office buildings, are generally weaker, while industrial and retail properties remain robust,” said Mark Sikes, principal with Deal Sikes & Associates.

“No broad brush can be applied to the Houston real estate market, although pockets of softness have developed,” Sikes said. “However, we anticipate moderate increases in values over the next year, for the most part.”

The single-family existing home market in Houston is a different story, as home prices have been rising and the residential market is exceptionally strong.

Although there are some pockets of concern, Houston’s commercial real estate market is not in a broad crash, like what the city experienced in 1987. Prices aren’t plummeting. But they aren’t booming either.

Sept. 26, 2016 Realty News Report Copyright 2016

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