Slowing economy nibbles at luxury housing market

The buyer who plunks down $3.9 million for the new five-bedroom house on Wink Road in Memorial's Bunker Hill Village will walk on marble floors, cook with Sub-Zero appliances and swim in a custom-built pool. If that person steps up in March or April, the luxurious estate also will come with a $90,000 Tesla.

The agent listing the property convinced the builder to pony up for the premium electric car in hope it would help snag a buyer. The property has been on the market since September and Houstonians aren't purchasing as many luxury homes as they were when oil prices were rocketing past $100 a barrel.

So far this year, home sales in the $1-million-and-up category are down 30 percent compared with the same period in 2015, data from the Houston Association of Realtors show. Sales of units in high-rise condominium buildings are down 17 percent.

"There are still buyers out there, but they really seem to have less of a sense of urgency," said real estate agent Diane Kingshill, who is listing the Bunker Hill house. "… Their hesitation is caused by their wondering what's going to happen in the future. Will prices go lower?"

In a city where fortunes are made and lost on the price of oil, some sellers of high-end houses are lowering their asking prices or resorting to unconventional tactics, some exotic but others more typical of the mass-market trade.

One builder sent an email blast to his contacts promoting his new 7,000-square-foot house in River Oaks. It read: "Just bring furniture and/or a decorator!" On a recent Sunday, the same builder hired someone to stand along the 2000 block of Kirby holding a printed sign with the home's address, the builder's logo and a message beckoning drivers: "Open House Today 1 pm - 3 pm."

In further testament to the market's fragility, Al Ross, the builder selling new homes in River Oaks, just called off his latest project, a six-story condominium building proposed for a site just south of Buffalo Bayou and west of downtown.

Ross announced the project about a year ago and was planning to break ground on it last fall. The units were to start at $1.3 million.

John Daugherty, Realtors had been listing units in the proposed building.

"We withdrew the listing because it wasn't the time to be marketing something like that," said John Daugherty Jr.

Bucking the trend

Though the market has softened, it hasn't collapsed.

Kingshill has seen the other extreme in Houston's upper-crust real estate market.

Last fall, she was hired to sell a $10 million estate, also in the Memorial area, and there was a contract on it before she could even post the listing on HAR.com.

"I told one person about it and we had a buyer for $9-something," said Kingshill, an agent with Martha Turner Sotheby's International Realty.

The owner of another top luxury brokerage said Houston's economy has become so diverse that the oil crash hasn't affected his business.

"January was the second best month we've had in 49 years in business," Daugherty said. The company's numbers bucked the trend, with its agents involved in 38 transactions of properties that sold for more than $1 million, up from 28 the same month last year, he said.

Daugherty noted how the health care and port-related industries are bolstering Houston's growth. And even as energy companies cut back on a global basis, some are bringing executives back to Houston.

"We're not like we were in the '80s," he said.

Beyond the city's diversity, the vast amounts of established wealth in Houston households has so far been enough to shore up demand for upscale properties.

While sales have tumbled, prices are holding fairly steady.

Even as oil hovers around $30 a barrel, the median price of the high-end sales that occurred in the first two months of this year was $1.4 million, up slightly from $1.38 million the same period of 2015, the Houston realty association said.

"My suspicion is, and particularly in the upper-income levels, these are generally guys that have the financial wherewithal to weather most storms," local property appraiser Mike Brubaker said. "These things may not impact them at all."

Giorgio Borlenghi, a local developer who builds posh residential towers in the Galleria area, said all but one unit has sold in his newest building - his most expensive project yet. Unfinished units sold for more than $3 million.

Greg and Barbara Rizzo didn't hesitate putting a contract on a 3,500-square-foot penthouse unit in a new high-rise under construction near River Oaks District, a ritzy development of luxury retailers, pricey apartments and top-of-the-market office space along Westheimer inside the West Loop.

They said the decision was a lifestyle choice more than anything.

"We wanted a more manageable home, a lock-and-leave environment," said Barbara Rizzo.

When the building is completed next year, the couple, whose children are grown, will move from a house in the nearby Tanglewood neighborhood.

Greg Rizzo is an executive with a midstream energy company, a sector of the industry that hasn't been as affected by low oil prices.

He said their decision to buy now was based primarily on their stage in life.

"That's probably dominating our decision making more than the state of the economy," he said.

Kingshill said some of her listings are owned by Houstonians who wouldn't be selling were it not for the struggling oil market.

"I have more than one that are CEOs of their own energy companies that are hoping for equity out of their house to help their business," she said.

The uncertainty of a presidential election year doesn't help either, said builder David Schwab of Schwab Design Builders. Many people put off major decisions until after the race is decided.

Schwab has lived through other local downturns and recognizes the challenges.

"It's hard to assess consumer confidence," Schwab said. "I'm hoping this time next year … we start feeling better about our local economy."

Buyers still out there

Earlier this year, the owners of a 30,000-square-foot estate in the exclusive Carlton Woods section of The Woodlands hired a Miami-based real estate company to sell their house at auction for a minimum of $6 million. It had been listed at $19 million in 2012.

The auction was scheduled for Feb. 20, but after it was announced several offers were made and the seller now has a contract for more than the $6 million minimum. Atop the purchase price, the buyer is acquiring much of the furnishings as well.

Trayor Lesnock, president of the auction company, Platinum Luxury Auctions, said Houston's real estate market will feel some impact from oil's correction. Still, he added in an email, "the folks with significant capital are not only more insulated from these effects, but they often prefer to 'go shopping' during these market times because they understand how to capitalize on opportunities."

Buyers are still out there, Kingshill said, but they no longer feel the sense of urgency they did when oil was high and the real estate market was booming. Many are simply hesitant as they wonder what will happen to home prices.

To help promote her Bunker Hill listing and the Tesla giveaway, the homebuilder, Kickerillo Cos., is planning a March 30 event at the house for real estate brokers and the public. Tesla Motors will be there with several cars for test driving.

"We're trying to do something creative to get attention to the property," Kingshill said. And if house doesn't sell, "we'll probably adjust the price and move on."