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Real Estate CEO on What's Driving Record Home Sales in Houston Region

Published Aug 04, 2021 by A.J. Mistretta

Jacob Sudhoff, credit Johnny Than.jpg

Jacob Sudhoff, photo credit Johnny Than

Last year’s collapse in oil prices and the onset of the COVID-19 pandemic couldn’t keep the Houston region’s housing market down for long. Area realtors ended 2020 with 115,523 home sales, up 11.6% from the year before and a new annual record for the region. The median price of a single-family home also reached a new peak of $259,011 in 2020, up 6.4% from 2019. 

For perspective on how the local home market continues to evolve alongside the ongoing economic recovery, we chatted with Jacob Sudhoff, CEO of luxury real estate firm Douglas Elliman Texas. Sudhoff took the helm of the firm’s Texas operations in September 2019 when his decade-old Sudhoff Companies joined forces with Douglas Elliman—one of the nation’s largest independent residential brokerages. We talked with him about what’s driving demand, where luxury buyers are coming from now and which areas of the region are currently the hottest. 

We’ve seen an incredibly active period in residential real estate over the last year or so in Houston driven by a number of factors. Can you break down some of those for us?

A couple of factors have impacted this active period. First would be interest rates; since they hit all-time lows last year, home ownership became more affordable. We saw a lot of people in Houston leave high-rise rentals due to the high rental rates and purchase a home for the first time.  

Secondly, after people were stuck in their homes for so long during the pandemic, they started to think more about how they live because they were more focused on their quality of life. People working remotely began thinking about whether they wanted a home office. Families wanted a dedicated place for their kids to do schoolwork, to be close to a park, and to have a backyard.

Your brokerage deals primarily with listings in the market’s upper tier. Are the dynamics of this price point different from the rest of the market right now and if so, how?

Yes, the dynamics are different. In the upper tier we are seeing that a lot of buyers are relocating from California, New York, Chicago, etc. The market is not as robust in the Houston upper tier as it is in the lower tier. For homes under $1 million we are seeing bidding wars on homes, we aren’t seeing that as much in homes on the market in the upper tier. The market is still very good, and we are still breaking records on a regular basis, but the buyer demographic is different – it’s more of a want in the upper tier versus a need in the lower tier. 

How have you seen the pandemic reshape what clients are looking for in a new home?

We saw a significant premium for larger lots. For example, in The Heights, lot sizes that were above average sold for almost 10 to 12% above list price. Additionally, people now want a home office, storage for package delivery since they stopped shopping in-person and began shopping online, and air filtration to enhance air quality as they began to consider cleanliness more. People are spending more time in their houses since they are working from home and their kids are being homeschooled, so they want to make sure they have the space to accommodate those needs. Before the pandemic, many were moving to smaller spaces, but now, people want larger spaces. 

At the same time that we’re experiencing more demand in the market, we’ve also seen a precipitous rise in construction prices. How is the new housing market dealing with that reality?

Replacement cost is now substantially higher. Inflation is here. It’s on average anywhere from 15 to 20% more expensive to build a house today compared to what it was 6 to 12 months ago. The beautiful part about the new construction is that the market has kept up with the inflation and the demand has also kept up with the pricing, so builders are still able to make a profit and build new houses.

Which areas of town are you seeing the most demand right now?

Actually, the hottest areas are the suburbs right now, due to the great school systems and safety. Inside the loop, The Heights is the hottest market. We’ve never seen the suburbs as hot as they are as today.

Real estate is still outperforming the stock market. For those investing in the long term, where do you think buyers will see the most return on their investment?

Real estate is a safe harbor for inflation and more people are going to be investing in this area. It can be rental homes, multi-family, retail centers, etc., any aspect of real estate is a great investment. A lot of people are fearful of the stock market so real estate right now is a great place to put your money. In real estate you have three sources of revenue: depreciation, appreciation, and the income.

You were one of the early players in the local luxury condo market. However, condos have not proven as robust a market segment here as they are in other Texas markets like Austin or Dallas. How do you explain that and do you think it will change over time?

The condo market around the world took a pause during COVID because you are living in a building with multiple people and usually the average age is older, and that demographic was staying at home. Since then, the condo market has picked up significantly across the country, including Houston. This year, we have sold more than we have in the past couple of years. It is not as robust as we want it to be like it was a long time ago, but I think those days are close as oil continues to rise. 
  
What else should we know about the market right now?

There are several factors playing into our market in Houston. Statistically, when the price of oil goes above $100-a-barrel, we have the highest appreciation in the city of Houston. I believe we are about to see that price skyrocket. I’ve heard that oil will hit $100-a-barrel by the end of the year, and that it will potentially be higher in the next couple of years. If that does happen, Houston will boom.

Also, Texas is benefitting from the growth of the many companies that are moving here. What’s interesting is that there are many buildings being built for tens of thousands of new high-paying jobs in Austin, but those people are not even there yet. Those buildings deliver between 2023-2025. This means there are many people moving to Austin and there isn’t enough housing for them, even today. There is not a way to keep up with demand for Austin at this moment, so what will happen is that Houston will get a lot of spillover. Houston has the infrastructure and workforce; we can support the growth of the rest of the Texas markets, so we are positioned well for the future. 

See the latest home sales data.

 

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