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Supply, Demand and Damage: Hurricane Harvey’s Impact on Real Estate Prices

HOUSTON – (Realty News Report) – How will Hurricane Harvey impact Houston’s real estate prices?

It’s been two months since the Category 4 storm hit Texas and dropped 50 inches of rain on Houston.

To know exactly how the storm impacted prices, we will have to wait until more flooded properties actually sell, says Houston valuation firm Deal Sikes & Associates. But for now, it looks like the results will be mixed.

Many real estate sales are closing as planned. The biggest post-Harvey deal, Brookfield’s $875 million acquisition of the 4.2 million SF Houston Center in downtown, which went under contract right after the storm, appears to be heading to a closing later this year.

But the Houston Center complex did not flood. Other Houston office buildings did. Some 16 million SF of office space was impacted in some manner and a lot of those building were restored within a month.

However about 4 million SF of office space flooded significantly and it won’t be repaired until 2018. Truth be told, a lot of that 4 million SF, including Class C office space, may never be restored.

“Some of the commercial space that flooded may be permanently removed from the market. This will place upward pressure on occupancy and rents and that could be reflected in increased property values,” says valuation expert Matthew Deal, principal at Deal Sikes.

Damage reports vary. The Greater Houston Partnership reports more than 500 business establishments were hit hard and may be gone for good. Some 100,000 single-family homes and as many as 40,000 apartment units flooded.

Investors are working flooded neighborhoods, buying single-family houses for lot value.

Harvey produced winners and losers in the valuation game, Deal says.

The winners include owners of rental properties that did not flood. The Houston Association of Realtors reports 4,233 single-family homes were rented in September, an 86 percent increase over September of 2016. Apartment occupancy jumped also. Rents are rising.

Then, there are the losers.

“For those hurt by flooding, the story is completely different,” Deal says. “These unfortunate property owners, many whose properties have never flooded before, face more than the cost of repairs and temporary displacement. The flooded properties may suffer permanent market value losses caused by the likelihood of future flooding and the stigma caused by the effects of contaminated water inundating properties, at times for more than a week.”

Home sales activity was strong in Houston in September and the median home price increased to $232,000, a 5.5 percent gain over September 2016. The median is the midpoint where half the homes sold for more and half for less.

But it is unclear how many of the homes sold in September were houses that suffered flood damage. It could be a very small number, only investor deals.

With storm repairs and restorations in full swing, labor shortages have been reported by home builders. The lack of labor will result in fewer home starts and push back construction activity into 2018, housing analysts say. Higher labor costs will translate into higher home prices for homes completed in 2018.

Hurricane Harvey’s 50 inches of rain was a rare event. Some properties may never be repaired. Others may be stigmatized. Time will tell how forgiving the market will be for homes that flooded in the massive – perhaps, once in a lifetime – storm of 2017.

Oct. 24, 2017 Realty News Report Copyright 2017

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