Houston: It might seem like Houston’s historic flood would make America’s fourth-largest city a less desirable place to live, but it’s going to get more expensive, real estate experts say.
The supply of houses and apartments is expected to drop sharply with tens of thousands of homes destroyed and uncertain prospects for future flood insurance costs.
Following a pattern seen in New Orleans after Hurricane Katrina, that’s likely to drive up home prices and rents in high-and-dry neighborhoods. Displaced buyers and renters will compete for a limited number of properties, said Nela Richardson, chief economist for the real estate brokerage and data firm Redfin.
Before the flooding from Hurricane Harvey, Houston had been a rare, fast-growing US metropolitan area that had retained an affordable housing market, although prices had risen in recent years and held steady through an oil-price crash starting in 2014 in this center of the US energy industry.
“Houston stood out nationwide as a market where housing was remarkably affordable across the income spectrum” compared to other dynamic job markets such as New York or San Francisco, said Aaron Terrazas, a senior economist at Zillow, which recently did a comprehensive study of the Houston housing market.
Houston’s median home price in July was $230,000, unchanged from a year earlier, and the median value of all off-market homes was $190,000, according to Redfin estimates. That compares with a national median sale price of $293,400.
The experience of New Orleans gives some insight into what may lie ahead for Houston. In the 10 years after Hurricane Katrina, average home prices rose to $339,743 in 2015 from $228,620 in the first half of 2005 – an increase of 48 percent, according to an analysis of New Orleans Metropolitan Association of Realtors data by Real Property Associates.
Home prices and rents shot up immediately and dramatically as catastrophic flooding left few homes for the tens of thousands of displaced New Orleanians trying to come home. Prices stayed higher over time, as some neighborhoods never fully recovered and the city saw new demand from outsiders who decided to stay after helping to rebuild New Orleans.
It remains to be seen whether Houston – a region six times the size of the New Orleans metropolitan area – can better absorb the shock of losing so much supply all at once.
There are an estimated 242,000 homes in or very near the known flooded areas of Houston, collectively worth about $61 billion based on pre-storm values, according to Ralph McLaughlin, chief economist for the real estate listings and data firm Trulia.
Lisa Gilbreth, a real estate agent with Houston-based Clark Warthen Properties, said she believed prices in some flood-prone areas would fall.
Many of those owners “are going to say ‘I can’t do it anymore’ and are going to sell, but they won’t get much” for their homes, Gilbreth said.
Thousands of flooded homeowners did not have flood insurance, putting them and their mortgage lenders in peril of default, said Redfin’s Richardson. So far, she said, most banks are not extending much grace to borrowers: three months of forbearance, after which the missed payments are due.
Real estate investors are already sensing an opportunity in that desperation, Richardson said. The firm’s agents in Houston are fielding calls from investors who want to buy flooded homes on the cheap, she said.
“They believe Houston will be rebuilt,” she said.
Affordable housing has long been a key to Houston’s economic and population growth. Relaxed zoning and a pro-development spirit have produced a sprawling metropolis with homes for every budget, said Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston’s Bauer College of Business.
