How the Oil Slump is Affecting Land Prices for Homes

Paul Takahashi 
Houston Business Journal

Steve Spillette, president of CDS, was recently interviewed by the Houston Business Journal. His interview is as follows: 

Developers are lowering prices on large home lots as luxury home sales have slowed during the oil slump, according to a new report. Community Development Strategies, a Houston-based real estate research firm, recently released its bi-annual lot price survey, which polled developers in 100 communities across the Houston metro region about the cost of their home sites. Most major developers, except for The Howard Hughes Corp. (NYSE: HHC), participated in the survey, which was conducted in July and announced in late September.

​Community Development Strategies found that lot prices, for the most part, have remained stable across the Bayou City despite the oil slump.

The average residential lot in Houston’s master-planned communities ranged in price from $60,000 for a 50-foot lot to $100,000 for an 80-foot lot. The average home lot in a conventional, non-amenitized community ranged in price from $45,000 for a 50-foot lot to about $98,100 for an 80-foot lot.

“Land prices tend to be very sticky,” said Steve Spillette, president of Community Development Strategies. “Things will have to get a lot worse for prices to come down. Our slump isn’t bad enough or long enough.”

However, residential developers are discounting prices for large, 70-plus-foot lots on the northwest side of Houston, according to Community Development Strategies. The average price for a 70- or 80-foot lot in the northwest quadrant fell between $3,000 and $4,000 between January and July, according to CDS' most recent report. In the southwest quadrant, the average price for a 70- or 80-foot lot fell as much as $10,000 during the same time frame.

The lower prices for these large lots is reflective of the low oil prices’ effect on the upstream energy sector, Spillette said.

“Demand for expensive homes on large lots is softer so you’re seeing some price decreases,” Spillette said.

However, prices for large home lots in Houston’s northeast and southeast quadrants have held steady, because people who are living there are less likely to be working in the upstream oil and gas sector, Spillette said.

“Large lot sizes have remained in demand (on the east side) so prices have gone up,” Spillette said.

In addition, master-planned community developers are also less likely to lower their prices for large home lots, Spillette said. There has been a bigger price drop for large home lots in conventional, non-amenitized residential communities compared to highly-amenitized master-planned communities, he said.

“Homebuilders are trying to get positions in master-planned communities, because they think there’s more market security there,” Spillette said.

Developers are now shifting their land mix to accommodate smaller home lots — where homebuilders can construct more affordable homes that are still selling amid the oil slump, Spillette said. Some developers are looking to replat, or reconfigure, their tracts to fit smaller home lots instead of large home lots, he added.

“Homes between $200,000 and $350,000 are still very much in demand,” Spillette said. “That market is still quite strong.”

Click here to learn more about the ​The Greater Houston Area Subdivision and Lot Price Survey.