This is an update for an article I did for Inman News a few weeks ago. Latest data below.

In the last 14 months, oil prices have fallen by 60%. For most American consumers, this has been a pleasant bonus. Lower gas prices give us more money in our pocket to do things like buy houses.

For US oil companies, on the other hand, it’s hard to make a profit when the market slashes your prices. Oil company profits are way down. Stock prices are crushed. Investments in drilling and refining are being slashed. Layoffs are, inevitably, underway.

This means that cities in the oil business may have a much different economic outlook than the rest of the US. And no American city has tied its prosperity to the fate of the oil and gas markets more than Houston, Texas. In October I visited with some of Altos Research’s Wall Street clients, and every one of them wanted to know: “What’s happening in Houston?”

Given that Houston has a reasonably resilient housing market, and that you can imagine a year or more lag time between oil market shock and a city’s economic reverberations, we should just now be seeing the signs of regional economic slowdown in Houston’s real estate market.

Let’s take a look at the data and see what we find.

Measuring Demand for Real Estate in Houston

At Altos Research, we have a basket of indicators that we use to measure buyer demand for homes. One of the most insightful measures is the percentage of homes on the market that have taken price reductions. We know that in any market, some houses set their list price a bit too high and take a price cut before they sell – usually about 35% in a “normal” market and as low as 15% in a “hot” market.

So when price reductions are below 30%, we know demand is strong (more people are buying so sellers don’t have to cut prices as often as they’d expected) and home prices should experience solid gains for the next 12 months. When price reductions are between 30-40%, demand and supply are in balance and we forecast moderate home price gains for the coming 12 months. As price reductions climb above 40%, that’s when you should expect prices to decline.

Like the rest of the country, Houston’s real estate recovery started in 2011 – and you can see that in the Price Reductions stat which began a multi-year decline at that time. 2012, 2013, and 2014 were marked by pent-up demand, low supply, and of course rising home prices. Houston had a booming oil economy in those days.

Houston home price reductions
Percentage of single family homes on the market that have taken a recent price reduction. Source: Altos Research data

As of November 18, 2015 we can see that while the seasonal peak of price reductions will be significantly higher than any time since the recovery started, the percentage of price reductions is still climbing at close to 40%. This means that Houston has shifted from a hot market, to a notable cooler one. As of right now, Houston is showing the early risks of home price declines in the data. (UPDATE: the original post was written a month ago and price reductions are continuing to climb each week.)

We’re nearing the December seasonal peak for price reductions, when sellers cut prices to get the deal done before the holidays. We would expect to see things start to level off in January when new stock hits the market.

As critical as oil is to the Houston economy, it’s important to remember that the city also has other dynamics working in its favor, including positive sun-belt immigration, favorable zoning and development laws, low mortgage rates, and a broadly growing US economy. It’s easier to build and buy in Texas than in places like California, so the market is more liquid and less prone to giant spikes and crashes. This is evidenced by the fact that Houston weathered the housing bubble much more smoothly than other sun-belt cities.

As of right now, Houston home prices have not tanked in the great oil storm. But demand is notably weaker than it has been in several years.

For a while this summer it seemed like everyone expected mortgage rates to climb. However, since a peak in early July, rates have been drifting lower and are back under 4% – less than half their long-term average.

With mortgage rates down from 4.5% a year ago, homebuyers can actually afford 8% more home than a year ago, according to our friends at

mortgage rates
Mortgage interest rates, 30-year fixed loan, across the Altos 20-City Composite, year-to-date 2015.


It may be hard to believe, but the US housing market is now well into its fifth year of recovery. Home prices across the US are up another 7% over the past year, raising concerns about affordability for cash-strapped home buyers. If rates rise, that concern gets amplified. If mortgage rates fall however, that would provide another cycle of boost for housing demand.

Long-time readers of this blog will be aware of the striking shortage of homes for sale around the country. The low-supply conditions have lead to consistent price gains as demand has gradually increased since January 2011. Today is no different. Rates under 4% add to affordability and marginally add to housing demand.

To be clear, there isn’t a lot of evidence that small changes in mortgage rates change housing demand profoundly. So the last few months of mortgage rate drop are merely adding a check in the bull-market column for US home prices into 2016.

What does this all mean for home buyers? It might cost you more to buy a home, but with low interest rates, you may actually be able to afford it.




I get a variation of this question nearly every day. Bay Area home prices are nuts. Both rents and values are rising. It seems out of whack with reality and sustainability. The other day I answered a question on Quora and I thought I would repeat it here.

The short answer is that exorbitant home prices and rents are, generally speaking, sustainable.  The three home price bubble bursts of the last 25 years have, in retrospect, been amazing buying opportunities for Bay Area real estate.

The longer answer is more nuanced, because the “Bay Area” is a big place, and as we experienced in the 1991-1993, 2001-2003, and 2008-2011 real estate busts, home prices acted VERY differently across this big geography both in collapse and recovery.

So for brevity – I will call your attention to what we at Altos Research regard as the single most important variable for “unaffordable” price sustainability in a given market.

We created a metric called Inventory per Capita because it turns out we can measure Supply vs. Demand in a way previously impossible (due to the byzantine US real estate industry). For further details about Altos Research real estate market data, see our main site.

Inventory per Capita is the number of homes currently for sale in a market divided by the population. Or inversely, the number of potential buyers who have to compete for a given home for sale.

Let’s compare three cities of similar size (~30,000) and high-end demographics – Los Altos, CA; Winnetka, IL; and Southlake, TX – to see how this works.

As of August 7, 2015:

  • Southlake has about 255 homes for sale and a median home price about $800K.
  • Winnetka has about 190 at $1.3M median home price
  • Los Altos has exactly 17 homes for sale and a $3M median home price

We hear about how “median home prices are unaffordable to the median income” in the Bay Area. But in a place like Los Altos, they don’t have to be affordable to the median income. They only have to be affordable to 17 people!

Bay Area home prices are high because demand is moderate and supply is infinitesimal.

When marginal demand tanks, as it did in 1991, 2001, and 2008, prices adjust down rapidly. But they tend to recover quickly with demand.

California has a chronic shortage of available housing for two reasons:

  1. Restrictive zoning prevents new construction
  2. California’s goofy Prop 13 tax law that acts as a giant rent control. People can’t move without resetting their tax basis, so they don’t. So fewer homes are for sale and they cost more to people who don’t already own.

Both of the legal structures were explicitly designed to favor existing home owners over outsiders who want to buy. “I’m already here. Screw you.” They are unlikely to change.

Incidentally – rents and prices do not move counter to each other, but in tandem. Both are driven by household formation (economic growth), so demand increases for each simultaneously.

So when you want to know if a market is due to an over-pricing correction back down, like Vegas in 2005, I suggest you look at Inventory per Capita. It tells the tale you’re looking for.

[This article is part of a new Realtor-focused series on the Altos blog, looking at ways agents can use market data to build their business].

In our last real estate marketing article, we looked at ways to attract new clients using real estate market data. Now let’s look at how you can use real-time market data to help buyers answer three top questions:

1. Is now a good time to buy?

As agents, we get asked this question every day, by our clients as well as by people in our broader community. The most common way to assess the market is by looking at inventory reports… but if you’re relying on the inventory reports produced by the local MLS, you’re working with outdated information. These reports are based on the previous month’s results, not what’s happening in the market today.

With real-time real estate inventory data from Altos Research, agents can have the industry’s most up-to-date picture of the market to help their buyers assess timing.

Knowing how much inventory is coming onto the market is also just one of many stats to consider when nailing down the right time to buy. I also like to show clients Altos’ Market Action Index report to give them an instant, broad snapshot of how hot (or not) the market really is, today.

Altos Market Action Index

The Market Action Index compares the current rate of sale versus the inventory available to generate an instantaneous point-of-view on whether it’s a buyer’s or seller’s market.

I keep this report ready to go on my phone so I can whip it out anytime someone asks! (Then I email it to them with my contact info afterwards).

2. Where can I afford to buy?

We get this question all the time when working with a new buyer.

“I qualify for $400,000 – where is the best area I can buy?”

Real-time market data can help you zero in on locations AND demonstrate to clients what they can realistically afford.

Here’s a typical scenario: an agent asks their buyer, “Where do you want to live?” The buyer gives their top choices based on what they know or what others have told them. Then the agent asks, “How much do you want to spend on your home?” Quite often, the neighborhoods the buyer wants are way out of their actual price range.

When this happens, I generally pull up Altos’ Median Listing Price graph with median prices for the suggested areas to show them where we should really be spending our time based on their price constraints. This way, we can quickly narrow down the areas we’re out looking at, saving us both time and effort.

For example, say they’re interested in Beverly Hills and have $2M to spend – here’s a graph of the median price for Beverly Hills:

Median Price Chart

Unless they’re the Fresh Prince of Bel Air, perhaps they should be considering West Hollywood:

Median Price Comparison Chart

3. How fast do I need to move?

Helping a buyer understand how fast to move on a particular house is also imperative. One way to do this is by using Days on Market to show the velocity of the market – the faster homes are selling, the faster the buyer needs to get moving.

Average Days On Market

We can also look at New Listings versus Absorptions. In the example below, we see that absorptions (demand) have been outpacing the number of new listings (supply) over the past few weeks in Beverly Hills.

New Listings versus Absorptions Chart

This is an interesting chart because it shows how the picture can change week by week. Last month, the data showed many new listings coming onto the market but relatively slower absorption by buyers. Agents using last month’s data from the MLS might advise a client to wait on making an offer based on these outdated insights.

It’s clear in this example, though, that homes are now selling faster than new homes are coming on the market, so the agent might advise the buyer to move more quickly… if he’s using Altos’ real-time data, that is.

For example, a client recently shared with the Altos team that he was helping a Relocation buyer in an area that Altos has identified as strong seller’s market, with a Market Action Index of 60 and where days on market were falling.  The buyer decided that she loved one house the agent showed her, but she wanted to sleep on it and see if anything else came on the market.

Using Altos real-time data on new listings versus absorbed, the agent was able to show the buyer that while her target market had seen 5 new homes hit the market, 8 were going into absorbed status… and thus, she would have fewer homes to choose from if they waited. He also used Altos’ Days on Market data to show that the market was speeding up, with the most recently listed homes only staying on the market for less than 15 days. The buyer agreed to write the offer that night and was able to get to a successful close.

Tired of using last month’s data to help buyers make today’s decisions? Learn more about Altos Research solutions for real estate agents.