Harvey ushered in a new reality for Houston real estate

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Frank Placencia’s house on South Braeswood is a typical Meyerland new build — except for one thing: It’s 10 feet off the ground.

The house is so tall and so seemingly out of place that people have nicknamed it “Swamp Castle,” “the Grandaddy” and “the Houston walk-up.”

“As you can imagine, the house kind of sticks out,” Placencia said of his family’s new home, which has 15 steps leading up to the front door and an elevator in the garage.

Since Hurricane Harvey, more houses like this have been popping up in Houston neighborhoods along bayous that roared out of their banks during the storm.

For Placencia, “It’s just the new reality.”

Indeed, Harvey forever changed Houston’s real estate market. It clobbered property values, and it raised them. It transformed buzzing neighborhoods into ghost towns, and made die-hard homeowners renters. It turned streets like South Braeswood into schizophrenic landscapes where newly elevated McMansions stand alongside low-lying ranches.

HARVEY FLOODS: Most homes damaged by Harvey were outside flood plain, data show

The hurricane put Houstonians in positions they never imagined they’d be in, making lifestyle choices they never thought they’d have to make.

In February, Sam Scott said goodbye to the Memorial Bend home he and his wife raised three children in and painstakingly renovated over two decades.

After Harvey flooded his neighborhood and a nearby wastewater treatment plant overflowed, filthy sludge sat in the house for days. The Scotts felt they had no choice but to tear it down.

They put their nearly 10,000-square-foot property up for sale for $550,000, a discount from what lots were selling for pre-Harvey. After dropping the price by $25,000, they accepted a builder’s offer for $500,000.

“Teardowns were selling for $600,000 back during the boom in early 2014,” Scott said.

Houston’s housing prices have generally held up in neighborhoods that avoided the worst of Harvey’s wrath.

Of last year’s home sales, the median price per square foot was $104, a record for Houston and 4 percent higher than 2016, according to an analysis of sales and prices in more than 4,300 neighborhoods collected by the Houston Association of Realtors for the Chronicle.

Sales also hit a record high in 2017, and they have been up most of this year, too.

MORE: It doesn’t take a Harvey-style deluge to flood Houston

Still, a major source of the activity since Harvey has been investors buying flooded homes to fix and flip or turn into rentals.

Housing consultant Scott Davis, who has been studying the market effects from Harvey and previous storms, said home values typically take two to three years to recover.

His own house in Braes Heights flooded during Harvey. He’s had it on the market for several months.

There was a wave of sales immediately after the storm, Davis said, and owners who sold right away got a higher price than those who sold in the ensuing months. Prices have since recovered some.

“They’re still off significantly over what they were before the storm, but if you were to take what you got with insurance, plus what you could sell your house for today, you’re pretty close to par from before the storm,” he said of his neighborhood.

Areas that saw widespread flooding remain in transition.

Bernie Otten was able to return to his flooded home in The Woodlands in less than four months, but some of his neighbors still aren’t back.

MORE: City Council unanimously backs plan to build homes in flood plain

About 100 homes in Otten’s Timarron Lakes neighborhood flooded during Harvey. Some owners sold right away to investors, for a fraction of their homes’ pre-storm value.

“I think there will be more people moving and more people who lease their houses,” Otten said. “The market’s going to be soft.”

In Meyerland, one of the neighborhoods hit by flooding three years in a row, 163 homes are for sale or rent, more than 7 percent of the properties there.

But still-unoccupied homes make up what’s being called a “shadow inventory.” These properties are not being actively marketed, but their owners would sell for the right price.

Janice Rubin is still on the fence about her house in Meyerland, a neighborhood she’s grown to love and can’t imagine leaving.

None of her options seem ideal. Pay to elevate; take out a new mortgage, build new and pay higher property taxes; or repair the house and risk future flooding.

“That’s the incentive FEMA gives you,” Rubin said. “Fix the house the way it was and set yourself up for flooding again.”

The couple, who’s been renting in Westbury, could also sell their lot and buy in a neighborhood that didn’t flood. But there aren’t a lot of options there either.

“With the number of houses that flooded and people out of their homes, there’s not much available, and what is available is way overpriced,” Rubin said. “Houses in Westbury went up $100,000 in the six months after the flood.”

Scott Singleton’s Braes Heights home flooded on Tax Day 2016 and then again in Harvey.

He and his wife didn’t want to leave the neighborhood where they had raised their kids and made lifelong friends, so they’re spending tens of thousands of their own money to elevate.

“We’re going to make sure we’re not going to flood anymore,” Singleton said on a recent Friday afternoon from his front yard, an exposed cinder block wall raising the house behind him by some five feet.

In large part, homes are being elevated in upscale communities where residents have the means to protect themselves from future floods by lifting their homes.

Not everyone can afford that level of protection.

Davis, a senior vice president for Meyers Research, a company that serves the homebuilding industry, questions the logic of the city’s new building regulations that require new construction in flood plains to be elevated two feet above the 500-year flood plain, while many existing homes will remain at the level they were before the storm.

“I’m not saying we need to undo the regulation that was just done, but as I look at the juxtaposition of these two houses next to each other I can’t help but feel as if we’ve missed something regarding flood protection,” said Davis on a recent tour of elevated houses near Brays Bayou.

He said he would like to see the city to take a more holistic approach to flood prevention.

LISTEN: How a Houston investor buys and sells flooded homes

“What happens to those neighborhoods where they tear the houses down but can’t afford to build them, or the market won’t support building them, to a new standard?” he said.

“Nobody wants to build houses that flood, but at the same time the way that we’ve approached this thus far is that we are providing protection for people who can afford it. And without addressing some of those regional detention and conveyance issues, we’re not going to be able to bring the same kind of protection to neighborhoods where people don’t have the resources to absorb an extra hundred thousand dollars in foundation costs.”

So far, concerns the hurricane would leave a lasting stain on Houston’s reputation and keep people from coming here and buying houses haven’t played out in any obvious way.

“I think people will still want to move here because we do provide housing more affordably than nearly any other major metro in the United States,” Davis said. “But that’s part of what’s in jeopardy with some of the directions we’re going with the regulations and the way that we’re responding to the storm.”

Houston was already seen as less affordable after price runups during the oil boom.

Builders also face higher costs from an ongoing labor shortage and rising prices for materials, increases that will be passed on to homebuyers.

MORE: Development tactic questioned in post-Harvey era

“If we haven’t taken steps proactively to defend the city from the type of natural disaster we have, which is flooding, than that will play a major role of people deciding to relocate here,” Davis said.

As the city’s overall economy regains its footing, the housing market will strengthen.

Before Harvey, Houston had begun to climb out of an extended energy rut after years of job losses and corporate cutbacks.

Oil prices have risen this year, but the energy industry remains fragile.

Other uncertainties for the housing market include rising mortgage rates and potential foreclosures among homeowners who did not have flood insurance.

“So far, the economy looks reasonably strong,” said Jim Gaines, an economist with the Texas A&M Real Estate Center.

Yet he predicts that, for a while at least, the city’s growth will be challenged.

“If you’re living in Iowa, do you want to move to Houston if they have this image of being under water every year?” Gaines said. “For a while, there’s going to be some reluctance.”

Nancy Sarnoff writes about commercial and residential real estate and hosts a weekly podcast called Looped In. Follow her on Twitter at @nsarnoff.

Developing Storm

A seven-part Houston Chronicle series explains why Harvey’s damage was both a natural and man-made disaster.

Part 3: What’s in Houston’s worst flood zones? Development worth $13.5 billion

Part 5:

Part 6:

For buyers within ‘flood pools,’ no warnings from anyone

Part 7: In Harvey’s wake, Dutch have much to teach Houston

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