Floodwaters from Hurricane Harvey caused more damage to residential homes than any other property type in the Greater Houston area, experts said. Nearly 5 percent of homes in the area flooded, but only 0.1 percent of those were completely destroyed, according to the Texas Department of Public Safety.
In August, home sales across the Greater Houston area dropped 25 percent, the first year-over-year decline in a year, according to the Houston Association of Realtors.
“It’s not going to be normal for a while,” said Bruce McClenny, president of Apartment Data Services.
However, the market continues to move toward recovery, according to new data released in early November by HAR. Although housing inventory in the Greater Houston area was up from a 3.8-month supply in October 2016 to 3.9 months this October, it is down from the 4.3-month inventory peak reached in the weeks immediately preceding Harvey, according to HAR.
What’s happening now
Because the fall is typically a down season for real estate, it is hard to gauge Harvey’s immediate effects on the area real estate landscape, according to Realtor Amanda M. Dietrich with Levine & Co. Real Estate Brokerage. In Pearland, roughly 1,700 homes were damaged by Harvey, while approximately 2,410 homes in Friendswood were damaged by the hurricane, according to both cities.
Sale season begins as early as February as families prefer to move during the summer between the school year, she said. Thus in 2018, it will be easier to see Harvey’s lasting damage.
“People are still selling and buying now, so that’s good,” Dietrich said. “One thing that has definitely changed is people who are buying are asking if the house has flooded, and that is the new normal in disclosures.”
Local Realtor Kathy Kipp with RE/MAX Top Realty said because residents are still in the process of rebuilding and most damaged homes have not yet been put on the market, it is tough to estimate what losses homeowners may take if looking to put their previously flooded homes on the market.
“Several neighborhoods in Pearland had almost every house flood,” Kipp said. “These are in Brookside, Twin Creek Woods, Clear Creek Estates, many homes in Clear Creek Park, many in Corrigan South. There have not been enough sales to make the call yet.”
However, experts have noted property values have declined about 10-15 percent in neighborhoods where homes have now flooded more than once, Kipp notes in a post on her website, Pearland Home Guide. And neighborhoods with homes priced under $200,000 may not suffer losses like pricier homes because there are typically more buyers than sellers in that price range.
“The effects of Harvey on home sales is a tough one to answer yet,” she said. “People are still in the process of rebuilding, and it usually takes about 3-4 years for the market to normalize.”
The biggest lesson learned from Harvey, and what will likely be a lasting effect, is every homebuyer should purchase flood insurance regardless of where they are located, Dietrich said.
Looking into the new year and as rebuilt homes come onto the market, Dietrich said the future of the market is not all grim. That also applies to Friendswood, where about 40 percent of homes flooded.
“You’ll see a lot of homes up [in Friendswood], and it could be a good thing because homes will be completely remodeled with new flooring and kitchens,” she said. “The issue will be, ‘Is the house in a flood plain?’ And if not, are consumers willing to believe [the flood]was a one-time thing, or should they be worried?”
Kipp said she expects to see a lot of inventory by the spring as repaired homes begin to hit the market.
“This may put downward pressure on pricing because of supply and demand,” she said. “In neighborhoods with houses priced under $200,000, I think prices will be less affected simply because there are fewer of them in our market. When many of the repaired homes come on the market around the same time, the pricing will have downward pressure.”
Lawrence Dean, regional director of Metrostudy Houston, which provides real estate industry research, said housing prices have not significantly increased and added the biggest effect for homebuilding will be increased competition for materials.
These include drywall, plumbing, drains, roofing and insulation, as homes are being renovated simultaneously, he said. While the process may be grueling, Dietrich and Kipp both emphasized the importance of taking the time to rebuild and not sell immediately.
“Meyerland is a prime example,” Dietrich said. “It’s flooded multiple times, and people come in and gut houses and eventually, they re-sell.”
And as literal signs of investors appear around communities—with streetside posters reading something like, “I Sell Flooded Homes,”—Kipp advises owners to repair and wait. Dietrich stressed the importance of working with a trusted real estate agent during the buyout process as well—if that is the route chosen.
“People have short memories, and as long as we don’t have another flood anytime soon, they will be fine,” Kipp said. “Investors are pouring into our market, taking advantage of people who just can’t or won’t deal with the rebuild process. A homeowner who can hold on and repair will benefit from appreciation down the road.”
Homes that did not flood are expected to see an increase in value, said Mike Dishberger, owner of Sandcastle Homes and former president of the Greater Houston Builders Association.
“I think the feeling is, if you make it through Harvey, you’ll make it through any storm,” he said.
Dietrich said homes that did flood during Harvey are not expected to come back on the market until at least next year.
“The biggest lesson is you could have flooding no matter where you live, but for houses that only flooded this one time, those probably have a better chance for being bought than those that flooded repeatedly,” she said.
Apartment demand increases
Real estate agents and analysts said it is tough to project how the real estate market will be affected long term. Meanwhile, the occupancy rate and average monthly rents increased from August to September.
Robert Kramp, director of research and analysis for CBRE, a commercial real estate services and investment firm, said displaced renters and residents seeking temporary housing spiked dramatically with about 6,000 Houston-area units being leased in the weeks following Harvey. As a result, Kramp said the number of apartments that have been leased is about 18 months ahead of expectations.
“A new segment of permanent renters could emerge out of the storm,” he said. “For example, older homeowners contemplating apartment living now have an additional motivation to shift from owning to renting.”
Meanwhile, Apartment Data Services counted 15,662 damaged apartment units across the Greater Houston area. McClenny said rents typically increase between 6 and 7 percent in Houston after natural disasters.
“The [damage from Harvey]doesn’t seem as devastating as we initially thought,” McClenny said. “We surveyed the damage [right after the storm], and we were able to get in contact with 98 percent of our members.”
Approximately 230 apartment units were damaged due to Harvey in the Pearland and Friendswood areas, roughly 1 and 2 percent of the inventory, respectively, according to Apartment Data Services. Apartments up and down I-10 near the Barker and Addicks reservoirs were also a big source of flooded units, McClenny said.
“Effectively, all those down units will come back fairly quickly,” he said. “There will be some kind of exodus from the single-family homeowners.”
Additional reporting by Danica Smithwick, Chevall Price and Chris Shelton