Two weeks after Hurricane Harvey made landfall in Texas, Redfin data analysts and real estate agents have already seen homebuyer and seller activity rebound, showing a remarkable resilience and optimism.
“In between delivering clothes and meals and ripping out neighbors’ drywall, Redfin agents have been touring homes, writing offers, keeping deals on track, and advising clients as they decide how to move forward,” said Tara Waggoner, Redfin’s Houston market manager.
Damage is widespread, but varies block to block, home to home
While the situation is in flux, an initial tally from Redfin agents as of September 6 found seven of the 41 Redfin listings that were on the market when Harvey hit sustained damage. These homes were taken off the market and will be relisted once repairs are completed.
“Harvey did not discriminate. He hit million-dollar homes and $50,000 homes alike in neighborhoods across the metro area,” said Waggoner. “Some homes are unfit for habitation, while homes around the corner are completely fine.”
The real estate market rebounded quickly
Redfin tour requests dropped steeply in the days immediately following the storm, but had rebounded somewhat by Labor Day weekend. Tours on Friday September 1 were down 34.4 percent from two weeks earlier. Nationally, tours were down 22.3 percent over this period, reflecting a typical seasonal slowdown.
“There are some buyers who are questioning whether they still want to purchase a home in Houston at all. About one in six Redfin contracts have been cancelled,” said Waggoner. “But the majority of Redfin clients are forging ahead with their plans. In fact, our team closed two home sales the week of the storm.”
People see opportunity
Interestingly, in some cases Redfin is seeing a surge in buyer interest post-storm. Even in neighborhoods with a lot of damage, the homes that didn’t flood are in high demand. Irma Jalifi, a Redfin agent in central Houston, wrote three offers for undamaged properties right after Labor Day. All were accepted.
“All three were aggressive, full-price offers for homes that did not have competing bids. It is unusual in this market, where we were beginning to see homes staying on the market longer, for buyers to make a full-price offer unless another buyer is competing for the property, but it reflects how serious my buyers were to get these homes under contract given the circumstances,” said Jalifi.
Even those with flooded homes probably will not have a problem selling, as many people are already speculating on the market recovery. Waggoner estimates that the volume of calls Redfin is receiving from cash investors looking for homes to buy at a discount has quadrupled since the storm.
Sales will slow, but not enough to impact national sales figures
About 4,190 Houston-area homes went under contract in August, the seventh highest number of August pending sales in the markets Redfin tracks. In normal circumstances, we would expect those sales to close within the next 30 to 45 days. Many of these pending sales will fall through or be pushed later in the year or into 2018 as buyers and sellers reconcile with the storm damage.
“Houston represents 2 percent of national home sales,” said Redfin chief economist Nela Richardson. “Worst case scenario, if Houston had no more home sales this year, we estimate that Harvey would shave just 1.5 percentage points off of national sales growth in the last four months of 2017. However, since we already know that homes are continuing to sell in Houston and the surrounding areas, we believe the actual effect on national home sales will be much smaller.”
Once a bright spot in the Houston housing market, inventory dropped over night
Inventory is already down 9.2 percent since the beginning of August in the Houston metro, compared to 2016’s seasonal drop of 1.1 percent. The number of homes newly listed for sale between August 14, 2017 and September 3, 2017 is down 30.4 percent in the Houston metro from to the same period in 2016.
“Until Harvey, Houston was the rare big-growth city with an affordable housing market. While most metro areas in the U.S. have faced an inventory crunch this year, Houston’s housing supply has been increasing, driven in large part largely by new construction,” said Richardson.
Much of the inventory growth in Houston was due to new construction. Harris County alone holds 11 percent of all residential building permits in Texas. Over 10,000 single family units were permitted between January and July of 2017, up 14 percent from a year earlier. Looking ahead, as much as 45 percent of all Texas building permits for new single-family housing could be affected by Hurricane Harvey. The resulting drop in supply will likely result in price increases right away in many parts of the city.
Some buyers will pause their home search or relocate
As of September 6, eight of the 45 Redfin buyers who were under contract before Harvey hit had decided not to move forward with the purchases. Some canceled the purchase due to damage, while the others were feeling unsettled and are rethinking their plans to buy or considering relocating to other areas.
“We have already heard from some Redfin clients who had been home searching in Houston that they are planning to move to Dallas instead,” reported Jason Aleem, a Redfin District Manager who oversees Redfin operations across Texas. “We are preparing for more demand from buyers relocating from the Houston and Corpus Christi areas.”
In the second quarter of this year, 23 percent of Redfin.com users looking for homes in Houston were searching from other metro areas, with the largest share coming from Los Angeles, the San Francisco Bay Area and Washington, D.C. We will monitor for any shifts in the volume of external searchers looking for Houston homes as well as Redfin.com users in Houston searching for homes in other metro areas.
Lee Rusk, a Redfin agent in Houston, helped a couple relocating San Francisco for a job opportunity close on their new home in Manvel, Texas on Sept. 8.
“They were understandably very concerned watching the news unfold from California. Although their new home wasn’t damaged, they still debated backing out. Ultimately, they took comfort in the fact that the home did not flood under such extreme circumstances.”
Lessons from other natural disasters
Richardson said the widespread nature of this flood makes it difficult to draw parallels between other natural disasters like Hurricane Sandy and Hurricane Katrina.
“With Katrina, entire neighborhoods were washed away and have yet to fully recover, while other neighborhoods were relatively unscathed and saw home prices rise. Yes, some flood-prone Houston neighborhoods were hit hard across the board, but in others, the damage was more hit-or-miss. Homes on one street had a few feet of water inside, while a block away the homes stayed dry.”
Hurricane Harvey will have a lasting impact on Houston’s real estate market, both in terms of home sales and prices, but also in shaping how Houstonians think about building, zoning and infrastructure, and where they choose to live in the months and years to come.
“While the situation is heartbreaking, the Houston community is rallying and moving forward together,” said Waggoner. “Nothing keeps Houston down for long.”