Although Hurricane Harvey is now long gone, for several Houstonians, the devastating impact it left behind is far from over. Many homeowners and builders are still in fix up, clean up mode; working hard to restore their homes to pre-Harvey conditions. Many Houstonians, especially those impacted by the storm, are wondering- “How will Hurricane Harvey impact the Houston housing market?” I have received tons of calls and emails about this topic, so I wanted to share my thoughts.
Houston has seen devastating storms before, and the market has always bounced back. However; with Harvey- so many areas were impacted that have never been before. According to a study done by real estate company CBRE, between 30,000 to 40,000 homes were destroyed. About 105,000 apartments were damaged. And about 196,000 homes had some sort of storm damage.
It may seem like Houston’s historic flood would make Houston (America’s 4th largest city) a less desirable place to live, but many real estate experts say the housing marking will continue to grow and get more expensive.
House Sales to Increase
Immediately following a storm, there is typically a decline in inventory of housing. This puts pressure on existing listings (that were not impacted), meaning rates are likely to increase for a short period of time. To get a better understanding, check out Ted Jones’s blog: Hurricanes, Housing, and the Economy.
In Ted Jones’s blog he looks back at what the housing market has done after devastating storms. He looks at Hurricane Charlie, Rita, Allison, Ivan, & Ike. Overall the study shows that we should expect home sales to increase within the next couple months.
The storm itself is a driver in increased sales & real estate activity. Many homeowners who were impacted by the storm were forced to evacuate and find a new place to live- this cased a spike in the rental market.
Real estate experts predict that about 20% of flood victims will sell their homes “as is” and not repair, 40% will repair and sell, and about 40% will repair and move back in. These are just estimated guesses, but this indicates that almost 60% of homes that flooded will be listed or sold in the coming months. Not only will these sales increase the volume of Houston home sales, but these people will need to find a new place to live. The homeowners that fall into this 60% will likely have to purchase or rent a new home. Houston will experience an increase in sales for both homes that did and did not flood.
Home Price Changes
With the volume of sales going up, what will happen to home prices? Historical data shows that the average home value increases following a major storm; the homes that flooded drop in value while the ones that remained dry will increase in value.
The minute water comes across your threshold, you have lost value in your home. There is not a black and white calculation for how much value has been lost, it depends on several factors. The biggest factor being: Has the home ever flooded before? Or Is your home in an area known for flooding? Homes that survived the recent Houston Tax Day/Memorial Day floods, but had water from Harvey are likely to take much less of a loss than homes that also flooded in one or both of those floods.
Last week I went to a round table meeting with a local Houston Appraiser, Alex Massa. Alex shared that in his opinion, a home that flooded for the first time during Harvey will be likely to lose 10% in home value when restored to its original condition. A home that has flooded more than once is likely to lose closer 20(+) % of value once restored to “pre-Harvey” condition.
Alex also agreed that the volume of home sales in Houston will likely increase; but, so will the inventory. In the upcoming months, we will see an oversupply of “flipped” homes. (Homes that flooded and have been rehabbed). When multiple homes hit the market in a particular area, we see prices drop due to competition. Again, causing more competition & lowering home prices in areas impacted by Harvey.
Thinking about selling a home that flooded?
For those whose homes were unfortunately flooded during Harvey, you may be thinking: “What do I need to do to sell my home (now or in the future)?” or even “How do I know the value of my home, aka: What I can sell for?”
Question 1: What to do if your home flooded and you want to sell? There are a few options:
• sell to an investor
• Fix and sell
• Fix and sell later
Sell to an investor: Most investors look to make 10-15% in profit margin. Think, what was the home worth pre-Harvey. Then determine how much money it would take to get your home back to pre-Harvey condition? Calculate the spread. A realtor and contractor would be helpful to give you more accurate calculations.
Fix and sell: Step one- GET A MOLD INSPECTION! Once you have determined there is no mold or had a mold remediation, then begin the repairs. When you determine the repairs and finishes that you will complete, remember $100K in doesn’t always mean $100K out. Talk to a realtor about reasonable home finishes and upgrades for the area you live in. You don’t want to “over-improve” your home and not see returns.
We have not seen any Harvey flooded homes fixed and sold yet. The ones that sell first in the neighborhood will set the bar for nearby flooded homes, as these will be the ones an appraiser will look at closely. According to several appraisers and real estate experts, I have spoken with, they expect a 10% decrease in home values for 1st-time floods.
Keep in mind- the sooner you can get your home listed, may be the better. Many suspect the market will see an oversupply of these rehabbed homes in the upcoming months.
Fix and sell later: these are the homeowners who want to return to their homes after repairs. Again, Step one- GET A MOLD INSPECTION! You don’t want to live in a home with Mold, and when you sell- you want to prove that the home was mold free post flooding. Just like above- be careful how much $$ you put into fixing the home back up. You want to stay consistent with the homes/price point in the neighborhood. As far as pricing for this group of people, again it depends on how many times your home/area has flooded. If you hold onto the home for a couple (+) years, the neighborhood may recover. People will forget the devastation of Hurricane Harvey and the question: Did this home just flood? May not be at the top of a buyer’s mind.
*One thought for those choosing to stay or sell their home post flood: look into the cost of raising the home. *
Advice to Buyers
Buyers, it is important to do a lot of homework and ask a lot of questions. Don’t just ask if the home has flooded. Ask about retention ponds and flood insurance requirements.
No matter where you buy- PURCHASE FLOOD INSURANCE! It is very cheap if you are not located in a flood zone. Here is a good article on questions about flood zones and flood insurance.
Lastly, expect to pay more for a home that has never flooded- but always have your realtor run comps and give you a report showing other similar sales close by.
Overall, the good news is that Houston home sales and home values are still strong. The outlook for recovery is very optimistic, but short-term disruptions are expected.
If you have any Houston real estate related questions, please feel free to reach out. I am always happy to help and look forward to working with you!