Houston: Do We Have a Problem?

Question

Houston has had some of the worst real estate returns of any market in the US over the last five years. Its price appreciation is worse than rust belt markets like Albany, NY and Harrisburg, PA.

But is a rebound around the corner? After all, oil is now up around $65/barrel, which could return Houston to the strong job and wage growth it experienced from 2005 to 2015.

Moreover - will that rebound be felt across the metro? Or in specific neighborhoods? There are big variations in how different ZIP codes have performed in value growth in recent years.

Cody L. · Answer

The multifamily market has gone insane in Houston.  Many prices have about doubled even in the last 5 or so years.  You've just had to bet on the right submarket.  12 years ago I it was Montrose.  Tons of $40k/door stuff that's all $120k/door now.  Then Heights about 8 years ago then Spring Branch about 4 years ago.  Now 3rd ward (IMO).   Just be in front of other investors.  Buy, cash flow, then sell out or refi into the appreciation and move to the next market.

Vijaianand Thirunageswaram · Answer

@Nick Gerli I see you spent good time analyzing and trying to make your mark on your consulting business. You have to understand, Houston was and is never appreciation market compared to San Diego. Investors don't just look for appreciation, appreciation is just icing on the cake. Your video may be relevant to the new buyers not really for investors. Even if the economy is great, still appreciation never as high as you want and cannot compare to other markets. That's also important reason that we stay floated even during 2008-2009. We want affordability for home buyers whether new buyers or investors, having great appreciation will put us out of it and make a bad market. I really do not agree with your analysis especially related to investors.

Thanks anyway!

Account Closed · Answer

@Vijaianand Thirunageswaram and @Mark Brown are both on the money.

Houston has never had run-away appreciation. It's a major city, but it doesn't have the level of appreciation as a San Diego or Austin. Houston is a great city for first-time homeowners and rental property investors looking for safe, cash-flowing investments. There's way too much open space for homes to appreciate quickly.

If you want fast-appreciating homes in Texas, Austin is a much better deal. The Rio Grande Valley is also growing very quickly and worth investigating.

Mark Brown · Answer

I just think that your whole premise about whether Houston will have a "rebound" in price appreciation is false. It never regressed.  It has low price appreciation because there have been pro-builder friendly policies in the suburbs and vast swaths of flat, easy to build on land.  Up until Covid and the lumber shortage, builders have been able to add new homes to help meet the demand.  Places like Austin have lots of "home appreciation" because of governmental restrictions on new construction.

Danny Day · Answer

Houston real estate values (single family) are highly driven by school district when you get out of the inner loop. This is why you see specific areas or clusters that have high appreciation compared to others. YoY Houston real estate had one of its best years for price appreciation (along with Austin, Dallas, etc).

The influx of out of state buyers is driving up prices all over Texas - I think many do not invest in the Houston area for price appreciation rather than cashflow. Texas is not a boom bust market .. more of a slow & steady market, although, one could argue the last 12 months have been anything but slow & steady.

Wale Lawal · Answer

@Nick Gerli Good Plug but I disagree as well because there are other important factors you are missing.

Some parts of Houston are still appreciating and cash-flowing. Also, Houston is more of a cash-flow market than appreciation.

Goodluck.

Matthew Jordan · Answer

The only thing I can think of that makes some of your analysis make sense is hurricane Harvey. You might have seen a dip in value in some markets and a lack of demand.

Cameron Tope · Answer

Hey Nick,

I agree with @Cody L. - there are sub-markets that are blowing up.

We don't do anything with large multi-family but the SRF's in the suburbs with great schools have appreciated 20-30% over the past 5 years.

I don't know what the overall data looks like but our owners are seeing great appreciation.

Houston: Do We Have a Problem?

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