(Refiles to change ‘like’ to ‘likely’ in headline)
By Daniel Trotta and Brian Thevenot
HOUSTON/AUSTIN Sept 1 (Reuters) - It might seem like Houston’s historic flood would make America’s fourth-largest city a less desirable place to live, but it’s going to get more expensive, real estate experts say.
The supply of homes and apartments is expected to drop sharply with tens of thousands of them flooded and uncertain prospects for the cost of flood insurance that will be required for many homeowners to rebuild.
Following a pattern seen in New Orleans after Hurricane Katrina, that’s likely to drive up home prices and rents in high-and-dry neighborhoods. Displaced buyers and renters will compete for a limited number of properties, said Nela Richardson, chief economist for the real estate brokerage and data firm Redfin.
Before the flooding from Hurricane Harvey, Houston had been a rare, fast-growing U.S. metropolitan area that had retained an affordable housing market, though prices had risen in recent years and held steady through an oil-price crash starting in 2014 in this center of the U.S. energy industry.
Houston’s median home price in July was $230,000, unchanged from a year earlier, and the median value of all off-market homes was substantially less, at $190,000, according to Redfin estimates. That compares with a national median sale price of $293,400.
The experience of New Orleans gives some insight into what may lie ahead for Houston’s market. In the 10 years after Hurricane Katrina, average home prices rose to $339,743 in 2015 from $228,620 in the first half of 2005 – an increase of 48 percent, according to an analysis of New Orleans Metropolitan Association of Realtors data by Real Property Associates.
Home prices and rents shot up immediately and dramatically right after the storm. Water covered about four-fifths of the city, leaving not enough homes for the tens of thousands of displaced New Orleanians trying to come home.
Prices stayed higher over time, as some neighborhoods never fully returned, coupled with demand from outsiders who decided to stay after helping rebuild New Orleans.
It remains to be seen whether Houston – a region six times the size of the New Orleans metropolitan area – can better absorb the shock of losing so much supply all at once.
Lisa Gilbreth, a real estate agent with Houston-based Clark Warthen Properties, said she believed prices in some flood-prone areas would fall.
The rains from Harvey produced the city’s third flood in three years, which is likely to drive some owners to sell out for cheap.
Many of those owners “are going to say ‘I can’t do it anymore’ and are going to sell, but they won’t get much” for their homes, Gilbreth said. “If you have a property that has never been flooded, then your home is more valuable than a place that has flooded two or three times.”
The real estate industry may also take a blow from declining sales, according to an analysis by Redfin.
“Home sales will decline as prospective buyers and sellers reset and rebuild after the storm,” according to the analysis. “Pending sales will also decline as damaged homes fall out of contract.”
Affordable housing has long been a key to Houston’s economic and population growth. Relaxed zoning and a pro-development spirit have produced a sprawling metropolis with homes for every budget, said Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston’s Bauer College of Business.
“You get in your car and keep driving until you qualify” for a mortgage, he said, describing a market with prices that generally fall the further you get from downtown.
Still, a relatively limited supply of entry- and mid-level homes prior to the disaster could make for an extremely tight market post-Harvey, he said.
Houston developers had in recent years focused on luxury housing for petroleum executives and other wealthy professionals, Gilmer said. When falling oil prices tanked the oil industry in 2014, builders scrambled to retool their offerings for smaller pocketbooks.
But building takes time, and supply is still constrained, especially for homes costing less than $200,000, Gilmer said.
“The distant suburbs where folks are looking for affordable homes, that is super-tight,” Gilmer said.
It has been much the same for rental apartments, with plenty available at rents of $1,500 and up, but a tighter market for more affordable apartments for working people, with occupancy rates hovering in the low 90-percent range before the storm, Gilmer said.
“This is the biggest problem that Houston will face: how to house these workers who are displaced,” Gilmer said.
It’s not yet clear exactly how much of the region’s rental housing has been destroyed. But losing a substantial portion would push up prices fast amid a surge in rental demand if previous storms are any guide, said Bruce McClenny, president of ApartmentData.com in Houston.
He said Houston-area rents rose 6.1 percent in 2001 after Tropical Storm Allison hit Houston; Hurricane Ike in 2008 raised rents by 5.7 percent.
McClenny said a few landlords he has talked to said most of their empty units were snapped up within days after Harvey struck.
“Demand is just going to totally overcome supply,” McClenny said.
Apartment dwellers flooded out of their rental units will need to relocate. Meanwhile, homeowners will need places to lease while their properties are being renovated.
Displaced locals will also be competing with outside workers who will likely move to Houston and stay for an extended rebuilding period, McClenny said.
“Many insurance companies will send platoons of adjusters and additional contractors will be needed to repair all the damage,” he said. “Both of these groups will need places to stay.” (Additional reporting by Marla Dickerson; Writing by Brian Thevenot; Editing by Marla Dickerson)