• How Does Hurricane Harvey Impact the Real Estate Market?

    Posted on October 5, 2017 by in Helpful tips, Texas Weather, Tips for Buying, Tips for selling
    The waters have receded,  now we are faced with the aftermath.  Many are asking, “what is going to happen to the real estate market”?  It is a complex question, yet I’ll do my best to provide an answer.


    Surprisingly, there is good news for both Homeowners and Buyers.  That is because the restoration of the damage caused by Harvey actually creates a stimulus to the overall economy with a “flood” of new capital. The reports of an estimated $50 billion or more in damage to Houston Area homes, means that there will be more jobs and increased sales of everything from building materials and automobiles to appliances and furniture.


    According to the Federal Reserve Bank of Dallas, hurricanes also raise home prices; peaking about three years after the storm. That is the long-term view though.  In the short term, the National Association of Realtors said Harvey resulted in Houston sales declining 25%. As in politics, everything is local and will focus on just the area west of the Grand Parkway. A lot of houses flooded, including one I own. However, the overwhelming majority did not.  So, the more pertinent question is “what is the impact of Hurricane Harvey on my home?”


    The obvious winners are the clear majority of Owners that did not sustain flood damage.  In theory, their homes should witness an increase in value compared to those that did flood. Yet, maybe not.  That is because, percentage wise, very few homes flooded west of the Grand Parkway.  So, there are a sufficient number of homes that did not flood to meet demand.


    Another group of winners are those that sustained flood damage, had flood insurance and arelocated outside the 500-year flood plain (Zone X).  Owners will suffer through the rebuilding process, but when completed, they will have totally renovated and updated homes…most all of it paid for by insurance.   I believe Buyers ultimately purchase on emotion and when faced with a choice of buying a home that flooded, yet has been totally remodeled; they will choose that home over one that did not flood, but is dated. That is if the Buyer is rational and recognizes that this was a 1,000 year storm and the probability of it flooding again is less likely than a home catching fire.


    Those that are located within the 100-year flood plain will not be quite as fortunate.  The good news is that most of these Owners had a loan and therefore were required to have flood insurance.  That means, they too, will have their homes renovated with the majority of the cost covered by insurance.  However, some Buyers will be more reluctant to purchase these homes, even when renovated and updated. Buyers will tend to look at these more carefully and on a case by case basis. Buyers will tend to look at these more carefully and on a case by case basis. That is because of the trifecta of being in the flood plain, will require flood insurance and they did flood, I believe these homes will suffer by remaining on the market longer coupled with downward pressure on Price.


    Others that will benefit from Harvey will be the Buyers and Investors who will capitalize on this “opportunity.”  There will be Sellers that will have no choice but to look to Buyers to “help” them out.  As long as Buyers take the high road and are fair, then both Buyer and Seller will each “win”.  Unfortunately, there will always be those that try to take advantage of those that are desperate. I’m hoping the goodwill that has been exhibited so far, will ultimately prevail.


    The worst is yet to come for many that sustained flood damage.  During and immediately after the storm, neighbors helped neighbors with a generosity that served to restore faith in the human spirit by the compassion exhibited by so many who volunteered to help. Most without ever being asked! However, now the majority of those that were lending a helping hand have gone back to their normal lives.  The victims of Harvey, however, are now faced going it alone with putting their home and lives back together. To say the least, it won’t be easy.


    The most affected are obviously those that were flooded and did not have flood insurance.  Horribly so, this will be most of those houses in Katy and Fulshear because most were located in Zone X and did not require flood insurance, and therefore, did not carry it.  Even worse?  Many will not have the funds to do the extensive repairs required.  Additionally, if they have a higher mortgage loan balance, then they will be financially “under water.”  They will not have the money to repair the home and a Buyer will not be willing to purchase the home because the loan balance plus the cost of repairs will exceed the market value.  Many will have little choice but to face foreclosure.


    Looking to Lease an Apartment?   Harvey’s destruction resulted in a total transformation of the rental market.  Prior to Harvey, Houston had been plagued by over building, resulting in an over-supply of 47,000 vacant apartments.  Harvey dramatically changed this instantly though, and has put the market in balance.  That means those looking now for an apartment are going to find it harder to do.  So far, prices have not risen.  That will happen though as a shortage develops.


    Realtors will also have a significant impact on the market. If they educate both Buyers and Sellers rationally, then they will serve the market well.  If for instance, they begin to “black ball” a given neighborhood because it flooded, then they could harm the recovery for those Homeowners and not serve the interests of Buyers that may have otherwise seen the “value” in that neighborhood.  The reality is that someone will buy these homes… Realtors need to educate their Clients.  In doing so, natural market forces will take hold.


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