Houston Market - Overheating? Buy now or wait till it crash?

Buying & Selling Real Estate
10yFollow

Houston Market - Overheating? Buy now or wait till it crash?

John Vo
Investor · Houston, TX · Member since 2015 · 99 posts · 56 votes
I hope to get everyone's opinions of how the Houston market is doing and share what their strategy is for the coming months as well as 2017 for investment properties in Houston. I'll start off the discussion. I've been lucky enough to have bought two properties during "real estate crashes" and have cashed out on one, while holding the other. I'm looking expand my holding and currently looking at properties that cost $150,000 or less in the Katy, Cypress, Sugarland, and Richmond area for rental. I've been analyzing foreclosure properties from the MLS, HUD homes, off market properties as well as deals from wholesalers and I've got to say the margins are slim across the board, as far as the deals that I've come across. There's properties that were build in the 1980s or earlier that's trying to be sold off for $140K or more with minimal or no rehab been done to it. That's ridiculous! But that is the current market in Houston at least on the lower end of the price spectrum. I've read a lot of the news article regarding oil prices and come to the conclusion that no one knows what the oil price is going to do. There's just too many variables in the market. I would probably get a better answer consulting a psychic than listen to some of these oil and gas CEOs and their predictions. But surprisingly, properties values below the $200,000 have been steady. To me this doesn't make a lot of sense, where a large portion of the Houston economy is oil dependent and where oil and gas companies have been shedding jobs left and right, but prices for rental and SFH resales have increase in some case and/or remain steady. Yes, I know there's argument that Houston is economically diverse in not only oil & gas, but medical, etc... But the fact remains is that a large portion, my guess is 60% and that's a total conjecture, of the Houston economy is still oil and gas related. So the question remains, should I/we/investors interested in Houston wait until the market "crash" to jump in or buy a property where the best deal you can hope for is $0.90-$0.95 on the dollar with minimal to no rehab and hope for the best?
0Reply
23 views

Most Popular Reply

Sharon Tzib
Real Estate Broker · Cypress, TX · Member since 2013 · 822 posts · 468 votes
10y
Originally posted by @John Vo:

There's properties that were build in the 1980s or earlier that's trying to be sold off for $140K or more with minimal or no rehab been done to it. That's ridiculous! But that is the current market in Houston at least on the lower end of the price spectrum.

I had to laugh at that. My first property was in N Calif back in 1998, $198K 3/1, built in the 50's, rented it for $1795. Barely cash flowed, but w/ the lower Calif property taxes, I broke just about even. In 2006, sold it for $565K! I think $140K 3/2's with 5-8% coc is pretty darn good, which is still out there in Houston, but one must dig, as you've said. I guess it's all about perspective, huh?

You are correct, no one knows what's going to happen w/ oil, but its decline started two plus years ago and Houston has more than weathered the storm. As it turns out, oil & gas accounts for about 30% of the Houston economy. And it's not our dominant industry any more. See the latest from the BLS http://www.bls.gov/regions/southwest/summary/blssummary_houston.pdf It answers @Hersh M.'s question about why do people keep moving here. Our unemployment rates are about the same as the national average, but our wages are better overall, we have a lower cost of living, no income tax, and great weather most of the year. 

Having said that, I believe Houston's market is going to start normalizing. This isn't because of any scary "bubble" or "crash" caused by oil, but because A, it's historically that time of year where the owner occupants with kids are back in school, which leaves us o/o's w/out kids, transplants, single folks and investors - demand will be down. B. inventory is up, finally (yay!!). Per July's Housing stats from HAR, we now have 4 month's inventory (http://www.har.com/content/newsroom). This is a very good thing and is already starting to have effects in the market with price decreases, something I haven't seen in the last two years at all. 

Another thing not being talked about (at least that I've seen on any of the forums) is the affordability factor. Nationwide, people are being priced out of the market, and Houston is no different. Buying a home is becoming harder and harder for folks, so if supply continues to increase but buyers can't purchase, that will have an automatic normalizing effect on our market. 

I realize anything I say as someone who makes her living selling homes can sound self-serving :) but I really am quite bullish on Houston, and I think the next six months are going to present an awful lot of opportunity for investors who still believe that Houston has a lot more going for it than just oil.

2Reply
See this reply in the discussion

7 Replies

Jump to latestLatest
  • Jon BurnsPro Member
    Lender · Katy, TX · Member since 2016 · 47 posts · 48 votes
    10y

    Hey John - check out this thread.

    https://www.biggerpockets.com/forums/311/topics/28...

    1Reply
  • Hersh M.
    Engineer · Carlsbad/San Diego · Member since 2014 · 285 posts · 97 votes
    10y

    "Metro Houston led the nation in population growth last year, adding more than 159,000 residents, according to the U.S. Census Bureau."

    Even I am wondering why so many people moving there? And what % is independent of energy sector?

    Here is interesting article on rising unemployment there but data is from 4 months back - http://www.houstonchronicle.com/business/article/Houston-unemployment-rate-tops-national-average-7886251.php

    1Reply
  • Sharon Tzib
    Real Estate Broker · Cypress, TX · Member since 2013 · 822 posts · 468 votes
    10y
    Originally posted by @John Vo:

    There's properties that were build in the 1980s or earlier that's trying to be sold off for $140K or more with minimal or no rehab been done to it. That's ridiculous! But that is the current market in Houston at least on the lower end of the price spectrum.

    I had to laugh at that. My first property was in N Calif back in 1998, $198K 3/1, built in the 50's, rented it for $1795. Barely cash flowed, but w/ the lower Calif property taxes, I broke just about even. In 2006, sold it for $565K! I think $140K 3/2's with 5-8% coc is pretty darn good, which is still out there in Houston, but one must dig, as you've said. I guess it's all about perspective, huh?

    You are correct, no one knows what's going to happen w/ oil, but its decline started two plus years ago and Houston has more than weathered the storm. As it turns out, oil & gas accounts for about 30% of the Houston economy. And it's not our dominant industry any more. See the latest from the BLS http://www.bls.gov/regions/southwest/summary/blssummary_houston.pdf It answers @Hersh M.'s question about why do people keep moving here. Our unemployment rates are about the same as the national average, but our wages are better overall, we have a lower cost of living, no income tax, and great weather most of the year. 

    Having said that, I believe Houston's market is going to start normalizing. This isn't because of any scary "bubble" or "crash" caused by oil, but because A, it's historically that time of year where the owner occupants with kids are back in school, which leaves us o/o's w/out kids, transplants, single folks and investors - demand will be down. B. inventory is up, finally (yay!!). Per July's Housing stats from HAR, we now have 4 month's inventory (http://www.har.com/content/newsroom). This is a very good thing and is already starting to have effects in the market with price decreases, something I haven't seen in the last two years at all. 

    Another thing not being talked about (at least that I've seen on any of the forums) is the affordability factor. Nationwide, people are being priced out of the market, and Houston is no different. Buying a home is becoming harder and harder for folks, so if supply continues to increase but buyers can't purchase, that will have an automatic normalizing effect on our market. 

    I realize anything I say as someone who makes her living selling homes can sound self-serving :) but I really am quite bullish on Houston, and I think the next six months are going to present an awful lot of opportunity for investors who still believe that Houston has a lot more going for it than just oil.

    2Reply
  • Keith Goodwine
    Nashville, TN · Member since 2016 · 82 posts · 137 votes
    10y

    It's up to you to determine whether timing the market is a viable strategy.  The next market downturn could be next week, next year, or next decade. In the words of Jim Rohn, "The next 10 years will look like the last 10 years - opportunity mixed with difficulty."

    There are many reasons to think the market is over-valued right now, and just as many reasons to think that there are still plenty of deals out there ripe for the picking.

    The best time to invest is always now.  If you are able to find deals below current market value, and that can survive market changes, then it is a viable investment.  That is true regardless of market conditions.  Buy low and sell when you feel comfortable.  Don't buy high and hope for higher.

    1Reply
  • John Vo
    OP
    Investor · Houston, TX · Member since 2015 · 99 posts · 56 votes
    10y

    @Hersh M. Thanks for the article!

    @Sharon Tzib I don't think Texas is going to be seeing the kind of price increase like California anytime in the near or distant future, but I would fervently hope that would be the case once I've bought all of my investment properties. 

    All kidding aside, a 1980s property sold at $140K is a 30-40% increase in price if you're comparing purchase price when you bought the same property in 2012-2013. As a value investor, that's a cause for concern that I'm running the risk of buying in a bubble because of such a high increase in value over a short time frame.

    I'm curious to know where you get the that oil & gas accounts for 30% of Houston economy. I followed the link you provided and it doesn't say that number. 

    And no, i don't think you sound self-serving at all. As a licensed agent myself, I'd like to think that I know my sub-markets that I invest in, but it's always refreshing to get other agents opinion of the market in general. I agree there's opportunities in the coming months due to the increase in supplies, but I'm not so bullish as you are though. 

    @Keith Goodwine That's some sound advice. Thank you.

    0Reply
  • Chuck Webb
    Houston, TX · Member since 2011 · 115 posts · 70 votes
    10y

    Jobs are the biggest variable that factor in here.  Retail can hold prices to the high side (as currently being demonstrated by the stock market), but in the end, the real market will bear what it will bear.  In order to get the good deals sooner rather than later, the best option is the foreclosure market if you have the cash.

    0Reply
  • Sharon Tzib
    Real Estate Broker · Cypress, TX · Member since 2013 · 822 posts · 468 votes
    10y

    @John Vo So sorry, but my reference to what I eventually sold my Calif property for was strictly anecdotal - I was in no way, shape or form trying to state that is what will happen w/ Houston - now that would be self-serving lol!! 

    Anyway, yes, I am confident in Houston. I think we will have some bumps in the near future, but our economy has proven to be pretty resilient, I believe it will continue to weather the storm enough to not fall off a cliff, and as long as rents hold or continue to increase, and jobs in industries other than o & g continue to be created or hold steady, it still makes sense from an investment standpoint. Also, sorry, I can't put my finger on the sites I've seen that 30% number, but it's been more than once over the last couple of years, and it depends on if you just looking at the % of jobs that are in o & g, or whether you are looking at all the ancillary businesses that service o & g. 30% is for the latter. My attachment does clearly show the number of jobs in o &g, and it's not the dominant force it once was, which is a good thing in times like these with lower o & g prices.

    I love what @Keith Goodwine says. So true. So many of my investors have been complaining that the market has been too hot and prices too high; now competition is lessening and prices are normalizing and they're too scared to pull the trigger. You can't have it both ways folks!

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free