Just how bad is the impact of hurricane Harvey on the Houston housing market? What will it mean for real estate investors? What does the potential for recovery look like?
Harvey’s Impact on Houston
At least tens of thousands of Houston housing units have been impacted by Harvey. Some estimates put this damage at around $400B. That’s around 4x the cost of Katrina. Add to this the loss and damage to other commercial properties, and interruption of business, and the impact over the next few years could come close to $1T.
FEMA estimates over 90,000 housing units were hit in Southern Texas counties, with only around 15% of properties covered by flood insurance.
While the loss of life, friends, and family members is a tragedy hard to put into words, the worst is just now kicking in for many local residents. They may face weeks and months without secure housing, lights and clean water, food will be scarce, and they face a variety of dangers daily. This is all in addition to the interruption of income, and financial loss, which may have lifelong consequences.
Still, Houston’s mayor, announced to new media on September 4th, 2017 that the city was ‘open for business’, and encouraged conventions and conference planners and visitors to still come out and host their functions there.
The Impact on Real Estate
Meyers Research shows that Houston had some glut of housing units prior to the storm, with landlords often offering nearly 3 months in free rent to attract tenants. Houston has reportedly struggled with high vacancy rates, of around 10%. That has fluctuated by around 7% since 2004, during periods of national growth, population growth in response to Katrina migrants, and a recent new construction surge.
Meyers Research’s SVP Scott Davis says “Houston has experienced real estate crises, oil price collapses, and major storms, and each time the world has predicted the region’s demise. And each time the city has come back stronger than before. We’ve taken a direct hit from a devastating storm, and the world will see that Houstonians are a pragmatic bunch who
help each other in times of need-and that we will emerge from Harvey’s aftermath again a stronger and better place to live.”
From looking at other cities and regions that have been hit hard by major storms in recent years, we can get a glimpse of what we can expect for Houston too. South Florida, has been continually battered by hurricanes, though as consistently regained residents, even though some have up and left for safer destinations. Real estate prices there continue to be very strong, housing has been rebuilt better, and yet some are still battling the financial consequences of storms from 10 years ago. Superstorm Sandy is still impacting the northeast, years later. Some residents are still struggling with finances. What was different in places like Long Island was the government’s reaction to seize high-risk properties by eminent domain, and to block future building on some parcels.
Factors that will play into Houston’s future will include:
Access to rental property financing will be a pivotal part of recovery and growth. Individual investors may leverage properties elsewhere with blanket mortgage loans to rebuild, or diversify into new markets. Houston property investors may be able to access equity with rental home financing to rebuild or maintain solvency until the situation improves. Yet, locals should expect some delays and quirks in real estate financing as lenders seek to verify property condition, and new values.