How Harvey Will Affect Houston’s Housing Market

By Jeanna Smialek

Just a week after Hurricane Harvey struck Houston, Irma Jalifi was doing something that might sound crazy: writing an offer on a home.

In fact, Jalifi, a real-estate agent with Redfin, put in offers on not one but three Houston houses Tuesday at their asking prices -- two at $1 million and a three-bedroom at $450,000 -- as the new economics of Houston housing began to take hold.

The calculus of disaster is simple, if cold blooded. Many whose homes have been flooded must move, and those who dodged Harvey now sit upon some of the city’s most desirable addresses. Far from declining, prices and rents are expected to rise given the sudden housing shortage. Out-of-state investors have even started to swoop in to acquire damaged homes to repair and sell or rent.

“It’s as if we hit a reset button on the market,” Jalifi said.

Before the storm, Houstonians enjoyed access to abundant affordable housing in exchange for unzoned sprawl -- the metropolitan area covers almost 8,800 square miles, making it larger than New Jersey. Cheap housing, paired with solid growth and abundant jobs, helped draw a gush of newcomers: The city population grew almost 10 percent between April 2010 and July 2016, Census data show. It is the fourth-largest in the U.S. and most diverse, drawing residents from around the world. Now, poor people and middle-income families find themselves in sudden competition for shelter.

“It’s one of the few cities that’s been fast-growing and relatively affordable. That’s going to change now,” said Nela Richardson, chief economist at Redfin Corp., which provides a web-based real-estate database and brokerage services. “At least temporarily.”

Typical hurricanes raise real home prices for years, peaking between 3 percent and 4 percent three years after the storm, 2010 Federal Reserve Bank of Dallas research found.

On a Hill

Those benefiting amid Houston’s devastation aren’t crowing about it, as high walls of soggy refuse line streets and neighbors assess the damage. Still, homeowners who were spared can’t ignore the unasked-for upside.

Evin Thayer, a professional photographer who has shot celebrities including President George H.W. Bush, is hoping to sell his $1.18 million, three-bedroom house in the Heights neighborhood by year-end. It stands on elevated ground, a couple of miles from the flood zone, and it’s headed for a higher valuation.

“For those that did not get flooded, I think it’s going to make it a high-value commodity,” Thayer said. “I’m kind of holding my breath to see what happens here.”

The 67-year-old, dressed in a navy Lacoste polo and khakis on a breezy Wednesday afternoon, designs houses as a side business and created this 3,000-square-foot structure to showcase his modern-art collection.

Thayer thinks the storm’s after-effects could help him make the sale. That said, he’s worried about how much his new house will cost him -- he expects rebuilding will tighten the labor market and drive up the price of building materials.

That’s “the unknown factor,” he said.

Frozen Rents

Much is unknown in a market jumbled overnight by the Category 4 storm. Harvey flooded 113,843 homes worth $29 billion, 6.7 percent of the local market, and may have affected as much as 14.2 percent of the housing stock, according to Ralph McLaughlin, chief economist at real-estate website Trulia.com.

“A week ago, before Harvey, we were oversupplied, and today, we have more demand than we have supply -- it’s just changed overnight,” Richard Campo, chief executive officer of Camden Living, one of the city’s biggest apartment developers, said in a Bloomberg Television interview. “We usually lease 70 apartments a week, in the last four days, we leased 300.”

Campo said his company has turned off its dynamic pricing system, which responds to demand increases by boosting rents -- freezing the cost of renewals and new leases for September. Camden said most other large owners are doing likewise.

Houston’s Gulf

Even with such measures, relocation will be easiest for those with ready cash. Houston has many without.

Harris County, which encompasses the city, already has a deep gulf between rich and poor. Among America’s 25 largest counties, its Gini index -- a measure of income inequality -- was ranked eighth highest in 2010.

Disasters like Harvey can worsen that divide. Rents are pressed higher, pushing poorer workers away from desirable, job-rich areas. Owners at the bottom of the wealth ladder may lack resources to rebuild, which is especially important given that many Harvey flood victims weren’t insured.

Tim Surratt, Thayer’s real-estate agent, said his phone has been ringing constantly as flooded homeowners try to sort out their options. One client had both his Houston house and Hill Country ranch flood, and is now renting a place for $13,000 a month. Usually such a unit would be on the market 100 days. In this case, it was a week.

In Thayer’s unscathed main room, cream walls and tall windows brighten the cavernous space. The pool outside is all clean lines, like something out of a minimalist painting.

“You feel kind of guilty that you escaped the whole thing,” said Thayer, sitting feet from a massive Robert Jessup canvas and a commissioned abstract piece dominated by strong blues. His name for the piece is appropriate for his hometown’s current moment: "Hope From Despair."

— With assistance by Jason Kelly

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Hurricane Harvey wreaked havoc on Houston and caused billions of dollars in property damage. One segment of the real-estate market, however, was less impacted: luxury homes.

While the number of sales that closed fell markedly after the hurricane, both listing prices and sale prices fell only slightly, according to Multiple Listing Service data from the Houston Association of Realtors. The median list price was down 3.1% and the median sale price was down 2.2%.

For its analysis, the association looked at luxury-home listings, defined as $1 million and up, between Jan. 1 and Aug. 24 and compared data to listings between Aug. 25 and Sept. 11. In its analysis of home sales, the association compared sales between Aug. 7 and Aug. 24 to those between Aug. 25 and Sept. 11.


Only a slight price decrease for luxury homes is predicted in the coming months, says James Gaines, chief economist at the Real Estate Center at Texas A&M University. “We’re expecting it to bounce right back up,” he says. “For the most part, these [homeowners] were able to absorb it.”

Real-estate agent Tim Surratt says he’s fielding dozens of calls from homeowners who are considering listing their flood-damaged homes. He’s also hearing from potential buyers looking to buy a fixer upper. “It’s a juggling act,” says Mr. Surratt, who is with Greenwood King Properties. Those looking to make a purchase are now more concerned about previous flooding, he adds.

Celebrity photographer Evin Thayer is keeping his $1.2 million contemporary home—not damaged in the flooding—on the market. He’s betting that some buyers are eager to invest in a never-flooded home in Houston Heights, which sits on high ground. Despite regular showings, the Mr. Thayer, who is working with Mr. Surratt, hasn’t received any offers. “It’s been quiet,” he says.

More buyers are thinking vertically these days, says Robert Bland of Pelican Builders, developer of the Wilshire, a luxury condo building under construction in the River Oaks District. Ten days after the storm, Mr. Bland signed four contracts for units ranging from $800,000 to $3 million. “In a twisted kind of way, it’s been a plus,” he says.

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