A quick browse through luxury house listings in and around Houston will show you that luxury home prices are up significantly. Aside from occasional droughts and downturns, the real estate market historically rises over time, so it’s not especially surprising to see that homes in Houston are going up in value. What is surprising is how quickly this growth has occurred in recent years – and how much those prices have risen.
So why is it that luxury houses in Houston are so expensive now? And will there be a reversal of this momentum in the future?
Demand for Houston Real Estate
One explanation for the rising prices of Houston real estate is the increased demand for Houston homes. This applies to all houses in and around Houston, regardless of size or value – but luxury homes tend to be hit harder by increased demand because buyers have more disposable income (and for a few other important factors).
The question is, why are so many people interested in Houston?
- The culture. Houston is a multicultural city, and the fourth largest in the United States in terms of population. No matter what you’re looking for, Houston probably has it; there are 145 spoken languages in the city, many diverse, interesting neighborhoods, plenty of support for the arts and theater, a thriving music scene, and ample opportunities for recreation. Living in Houston is an incredibly unique experience, and people from all over the country are interested in being part of it.
- Work opportunities. If you’re looking for a job, there are few more promising cities than Houston in the United States. The city is home to a multitude of high-profile businesses as well as hundreds of small and emerging businesses. Whether you’re moving here to look for a job or because you just landed a job here, moving to Houston is frequently motivated by employment opportunities.
- Cuisine and entertainment. Most people want to live in a city that has plenty of delicious cuisine and engaging entertainment – and Houston certainly has both. For decades, the culinary and entertainment scene has kept Houstonians immersed – and they’re only getting better from here.
- A nearly perfect climate. Some people move to Houston so they can get access to our nearly perfect climate. The weather is typically sunny and warm, winters are mild, precipitation is moderate, and there aren’t many storms or natural disasters to worry about (aside from the occasional tornado).
- Natural scenery. Since Houston is such a large city, most people think of it as a sprawling urban landscape. But there’s plenty of natural scenery to enjoy too. With plenty of parks and natural recreation areas around our surrounding lakes and rivers, any outdoorsman would be happy to call this city home.
- Prospects for the future. The best part of investing in Houston real estate is knowing that the city is on a massive growth trajectory. These demand-inspiring qualities aren’t going away or stagnating – they’re actively getting better, drawing even more people into the fold.
Current Economic Conditions
Prices of luxury houses in Houston are also influenced by our current economic conditions, including:
- Low inventory. The sad truth is there just aren’t enough luxury houses in Houston to satisfy demand. There’s been a huge increase in the number of people moving to Houston and living in Houston, and inventory is relatively low. The people currently living here don’t want to sell and new houses aren’t being constructed fast enough. This limitation in supply exacerbates the surge in recent demand.
- The mass migration to Texas. Thanks in part to effects related to the COVID-19 pandemic, there has been a mass migration of people coming to Texas, often from highly populated coastal areas like California and New York. People are looking to live in areas that are less densely populated, more economically stable, freer, and less expensive – and Houston fits the bill for all of these categories and more. Many people from California and New York have handsome salaries, which they can use to buy bigger and more luxurious houses in Houston.
- Wealthy buyers. Wealthy homebuyers make decisions differently than typical families. In some ways, they’re much more scrutinizing about the properties they buy, but in return, they’re often willing to spend much more money for the perfect property. This often sparks bidding wars, pitting multiple luxury home buyers against each other and driving up the price of each property in the middle. Because this happens so frequently, the listing prices of new luxury homes in Houston are pushed higher, ultimately driving the average home price higher as well.
- Relatively low interest rates. Federal Reserve interest rates have increased recently, and the Federal Reserve plans on increasing rates further in the future. This, in turn, will predictably increase mortgage interest rates. But for now, mortgage rates are still near all-time lows, making mortgages both more affordable and more attractive, especially for luxury home buyers. With greater potential buying power, relatively easy qualifications, and the prospect of taking on “good debt,” luxury home buyers are more likely to drive up prices.
When Will Prices Come Down?
If you’re looking for a piece of luxury real estate in the Houston area, you’re probably curious about when prices will come back down. Unfortunately, this answer isn’t straightforward. As you can see, there are many different variables influencing the price and availability of luxury homes around Houston. We can make some comfortable predictions about how some of these variables will develop in the future, such as the forthcoming rise in interest rates and the continued increased popularity of Houston itself. But there are too many variables that are unpredictable to say for certain what the broader trend will be.
Navigating the Houston real estate market is tough, especially if you don’t have much personal expertise. Everything gets much easier when you have the right experts working at your side. If you’re in the market for a luxury house in Houston, if you have one to sell, or if you just have a burning real estate question you need answered, we’re here for you. Contact us for a free consultation today!
Michael is Green Residential’s Vice President. He helps to keep the team organized and running smoothly. Prior to joining Green Residential, he spent 12 years working at Cadence Bank in the mortgage loan servicing department, where he specialized in loan audits, modifications, and bankruptcy-related issues for the mortgage portfolio.
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