In November 2017 the Houston Astros won their first World Series championship since the team was founded in 1962. It couldn’t have come at a better time for the city — and its residents — raising the collective spirit that was dampened just three months earlier when the flood waters from Hurricane Harvey left more than 137,000 single family homes in the Houston metro area either damaged or destroyed.
Considering that affected homeowners are still in the recovery process from Harvey, year-end housing data from the Houston Association of Realtors (HAR) came in strong, revealing a record year in terms of home sales and rental activity.
“No one could have imagined 2017 turning out to be a record-setting year for the Houston real estate market, which had weathered the effects of the energy slump only to have Harvey strike such a devastating blow,” said HAR Chair Kenya Burrell-VanWormer in the association’s January 2018 news release. “We know that many are still working tirelessly to rebuild their lives after Harvey, but overall, this clearly illustrates the incredible resilience of the people and the economy of Houston, Texas.”
Dr. Ted C. Jones, chief economist and senior vice president at Stewart Title Guaranty Company, who produces the annual economic forecast for HAR, agreed that the area’s overall economy continues to be strong despite the temporary setbacks caused by Harvey.
“All told we have a very healthy housing market in Houston,” said Jones, who focuses in on the metro area’s four most active counties — Fort Bend, Galveston, Harris and Montgomery. “Last year (2017) we sold more homes than anytime in history with a 2.4 percent growth rate in the sale of single family homes. Sales of homes for $1 million and up were up 11 percent for the year.”
Houston Housing Data Shows Continued Growth
A diverse economy, job opportunities and a growing population are just as essential to a healthy housing market as home prices, inventory levels and rents. Despite the effects of its recent natural disaster on housing, Houston’s economy is well positioned to venture forward into a positive future.
“Overall it’s still a growth city. A thriving melting pot,” said Thomas Mouton, owner and commercial director of RE/MAX Exclusive in Bellaire, Texas. “The secret is out. Recently there’s been a lot of foreign investors coming here to buy investment properties.”
Since the Census Bureau began keeping track back in 1850, the city of Houston, Harris County and the Houston-The Woodlands-Sugar Land MSA have all steadily gained in population.
As of July 2016, the city of Houston ranked the fourth highest population behind only New York, Los Angeles and Chicago at roughly 2.3 million people. At the county level Harris County totaled nearly 4.6 million people in July 2016, the nation’s third highest. With 6.77 million people, the greater metropolitan statistical area ranked the nation’s fifth highest.
Texas in general, and Houston specifically, are seeing an increase in millennials. According to housing data from ATTOM Data Solutions, in 2015 millennials accounted for 24.8 percent of the population in Harris County.
“Houston also outperformed the nation in job growth. Houston added 45,000 jobs in the past 12 months despite losing 27,500 jobs due to Harvey,” said Jones.
For December 2017, the Bureau of Labor Statistics reported that unemployment for the Houston MSA declined 1 percentage point from the year earlier to 4.3 percent. If it were a country, the MSA’s economy would rank 24th in the world, reports the Greater Houston Partnership, which also noted that payroll employment for 2017 reached a new peak for the region at nearly 3.1 million people.
Houston is home to the corporate headquarters of 20 Fortune 500 companies such as Phillips 66, Sysco, Conoco Phillips, Halliburton, Waste Management and Occidental Petroleum. Besides the oil and gas business it is known for, the region is home to one of the nation’s largest ports, as well as the Texas Medical Center, the largest medical complex in the world for medical research and applied life sciences.
As of the 2010 census numbers released by the Census Bureau, Harris County had a 56.8 percent owner-occupied housing units with the remaining 43.2 percent renter occupied housing units. Within the city limits, Houston residents have a median age of 32.7 years and a median household income of $47,010, according to the 2016 American Community Survey conducted by the Bureau.
Real Estate Investors Scared Off
In its 2013 Housing Profile for the Houston metro area, the Census Bureau counted nearly 2.4 million housing units in all, 55.6 percent of which were owner-occupied 34.4 percent-renter occupied units. Less than 10 percent of those were either destroyed or damaged by Harvey, noted Jones.
Fortunately, the stock of Class A apartment buildings were overbuilt in Houston.
“We have 70,000 Class A apartments that prior to Harvey had never been lived in. We were fortunate to have those units because they had to be temporarily occupied,” he explained.
Realtor Mouton has experienced firsthand the aftermath of Harvey, as have many other real estate professionals.
“I just helped a client with a six-month temporary lease while his house is being remodeled. There are still a lot of people affected by Harvey. I think overall the market, for how devastating the hurricane was, I still think we have a very healthy market.”
ATTOM reported at year-end 2017 that the Houston housing market saw a 5.4 percent growth in median home price compared to the year earlier, up to $214,000. For January, HAR reported the median price rose to $218,000 from January 2017 with a 3.3-month inventory of homes, down from the over 4-month supply before Harvey hit.
The amount of time homeowners in the Houston metro area are staying put in their homes has risen steadily quarter by quarter since the second quarter of 2016 to 7.88 years for the fourth quarter of 2017, a 3 percent increase from the previous quarter and up 7 percent from the same quarter the year before, according to ATTOM.v
Prior to Harvey, real estate investor Aaron Amuchastegui, principal of HomeRock LLC had Houston set on his radar of places to invest.
“We had a plan to have over 100 houses over 24 months. Now we don’t expect to acquire any,” Amuchastegui said. “We were just getting heavily into Houston when it happened. Since Harvey there’s been a lot of big market changes.”
One of those big changes he noticed on the courthouse steps were that the number of for eclosures up for bid, as well as the number of bidders attending the trustee’s sales has gone down noticeably.
“After Harvey a lot of those investors who used to buy on the courthouse steps stopped buying. The biggest reason, you buy a house but the only thing you see is on the outside. Now you don’t know if it’s vacant because it was flooded or because it is a foreclosure. Investors are saying they don’t have a way to get it right all the time. We decided it’s not worth the risk,” he explained.
Considering that Fannie Mae, Freddie Mac and the FHA granted Houston metro homeowners a 90-day foreclosure moratorium after Harvey, it comes as no surprise that investors were skipping the auctions.
Housing data from ATTOM shows Houston foreclosure activity dropping sharply immediately following the hurricane. In September 2017, foreclosure activity in the metro area dropped 46 percent from August and was down 61 percent year-over-year. The year-over-year increases have continued through January 2018, although there was a month-to-month spike of 188 percent in January — an indication that lenders may be ramping back up on foreclosures.
While many homeowners who want to move out of their flooded homes and can afford to move are leaving, there are still many who want to move but stay because their mortgage is underwater and they can’t afford to leave.
Year-end Houston home equity data collected by ATTOM show that the number of homes with seriously underwater mortgages (loan-to-value ratio of 125 or more) in Houston rose by 3 percent from the third quarter to the fourth quarter for the metro area as a whole — although the number was still down by 24 percent from a year ago.
But one of the big ticket items that really changed Amuchastegui’s mind about investing in Houston was the rising cost of flood insurance — as much as $500 a month per home for someone like him who takes out a commercial loan to purchase as many as 10 homes at a time.
“It makes it no longer feasible for us from a rental investor standpoint there,” he said. “Some of my friends are still buying there but they aren’t buying where there’s a chance it might flood.”
While individual investors may buy one at a time, repair and sell, HomeRock’s usual buying strategy is that for every 10 homes they buy they sell two or three on the open market through the Multiple Listing Service. The rest of the homes they keep as rental properties.
An ATTOM buy-versus-rent analysis for 2018 shows that the affordability to rent a three-bedroom property in Harris County — the most populated county in the Houston metro area — will worsen as the average rent for a three-bedroom home rises 9.3 percent to $1,565 a month while average weekly wages decrease slightly.
Builder Confidence High in Houston
Despite the overstock of apartment buildings in the area, there is new construction proceeding, with both mixed use and strictly residential high-rises in the downtown district. But there are also new single family homes under construction in the metro area.
According an analysis of Houston housing data by Metrostudy, homebuilders are on track to build 28,000 new homes in 2018, a slight increase over 2017 and a 10 percent increase from the most recent bottom in 2016, keeping the Houston metro area with the second highest number of new home starts in the country,
“It’s generally positive. Not gangbusters positive but not negative,” said Lawrence Dean, Metrostudy’s Regional Director in a Houston Chronicle article from February 2018. “We want it to be 32,000 a year.”
Still, builder confidence in the area remains high, according to Mike Dishberger, CEO and co-owner of Sandcastle Homes.
“We’re still very optimistic for the year. The oil jobs are coming back. The traffic’s been good. There’s some pent-up demand,” said Dishberger. “Harvey hit and for two to three months sales weren’t there. People are now deciding not to rebuild and selling for land value only to someone who will build up.”
Metrostudy reported in November 2017 that Harvey was basically a resale market phenomenon due to the locations of most of the flooding.
Overall, construction activity in the Houston metro is expected to be lower than in 2017, according to the Greater Houston Partnership’s report titled “Economy At A Glance.” All told, even with moderate growth in industrial and new home construction this year, it is not expected to totally offset the slowdown in office and multi-family construction.
“Houston does not have zoning. That’s why it’s building real fast. When it comes to permits the city of Houston has a viable program. Unlike California in Houston there’s only one permit per driveway. It’s the wild west compared to California.”
An infill builder, Dishberger’s company has been building inside the city’s Inner Loop neighborhood since 1995. As he explained it, the company tears down existing warehouses and homes, subdivides the lots and builds condominiums and townhomes in their place.
While buyers can still get a home in the $200,000 price range in Houston, Sandcastle sells its homes in the $450,000 price range — a move-up type of home with 2,500 to 3,000 square feet, three bedrooms, two baths and a two-car garage.