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

[John Vo]

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?

[Sharon Tzib]

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.