The Impact of Hurricane Harvey on Houston Real Estate
October 18, 2018
The devastating effects of Hurricane Florence and Hurricane Michael are not yet fully known as residents in the cities feeling the worst brunt of these hurricanes are still navigating the aftermath of destruction. But a little more than a year after Hurricane Harvey made landfall in Houston on August 26, 2017, a significant amount of data exists to determine how the city’s real estate market was impacted by the flooding and other damage Harvey caused as residents banded together under the call to remain “Houston Strong.”
Residential Market Shifts
Houston’s residential real estate market saw a significant shift after Harvey hit the city bringing significant flood damage to many homes. The storm arrived toward the end of the month when home closings are usually scheduled, resulting in August 2017 single-family home sales plummeting 25.7% compared to August 2016.* The multifamily residential market saw an immediate increase in occupancy levels and continue to maintain those levels even as people begin to move back into their repaired homes because of population growth.
Many say the residential real estate market conditions in Houston are rebounding and are healthy overall. A total of 8,358 single-family homes were sold in August 2018, which was a 37.2% increase from 2017 and a 4.3% increase from August 2016. Housing prices and rental prices are also up.
One of Harvey’s most significant impacts on Houston’s housing market has been a sustained drop in inventory due in part to flood damage to many homes, with 9% of Houston’s total housing units experiencing some type of flood damage.
The Impact on Commercial Real Estate
Houston’s commercial real estate market was less impacted by the effects of Hurricane Harvey. Only 3% of the commercial real estate footprint had problems with flooding in the storm’s aftermath, and many of those damaged properties have already been restored. Before Harvey, there was an extensive amount of office sublease space on the market, so the businesses that were impacted by the storm were able to move quickly into spaces that did not have any flood damage.
Some in the commercial real estate market in Houston claim to have seen an increase in the volume of purchases and sales of commercial real estate properties over the past few months. They say for the commercial sector, Harvey is mostly just a bad memory.
Chris Lantz, Senior Managing Director in Valbridge Property Advisors’ Houston office, adds his observations: "The storm had winners and losers. With some properties just finishing lease-up, they were thrown into disarray as their entire tenancy was lost. Other projects, unaffected by Harvey, received a good number of these tenants. None of the managers or agents dared to postulate the long-term effect on their properties, although most were optimistic. With the reduction in the pipeline, they have some reason to be confident in the future, even though some of these tenants will eventually move out as their homes are repaired. The net positive effect, although temporary, may not yet have been realized,” said Lantz. “Some managers tell Valbridge | Houston that many displacements have not left their temporary housing offered by FEMA, and they may enter the rental market as the FEMA subsidies end. In the long term, the effect of Hurricane Harvey will be a blip on the rental market. As the economy improves, the Harvey effect may be a way for many projects to leap over a challenging rental market into a period of normalcy, should that occur. No conclusions in this report are based on post-Harvey aberrations, as we have tried to exclude the effect of the storm in our estimates," Lantz said.
Valbridge Property Advisors will continue to assess the market conditions in Houston and are committed to do what we can to provide excellent service to investors and others as they consider and prepare to buy or sell in Houston and other areas affected by natural disasters in the United States. Contact us today at www.valbridge.com.