How will Harvey affect Houston real estate prices? For any type of house that has flooded, a depreciation of value is expected. The main difference between Harvey and previous hurricanes that hit Houston is 80% of the houses that flooded were not in the flood zone. When water was released from the Addicks and Barker Reservoirs, properties that were never expected to flood were dealing with upwards of a couple of feet of water. These damaged properties will not be worth their pre-Harvey value in the immediate future. On the other hand, houses that did not flood will be expected to appreciate over the next several months. This will be due to a shortage of housing: people whose houses flooded are looking to purchase new homes. For this situation, real estate investors should prepare for a seller’s market.
Why does a house’s value decrease after a flood?Anytime a house takes on water, the seller is required by Texas state law to disclose that the property has previously flooded. When a storm as large as Harvey hits and its devastation is common knowledge, potential buyers are going to be wary about purchasing a property that flooded only a few months ago. If you buy and flip a house six months after Harvey when the hurricane is still fresh in everyone’s mind, then the odds are you will need to lower the selling price in order to entice the buyer. So how do you combat this when your goal is to make a profit? By being conservative in your evaluation and taking into consideration a pre-Harvey discounted value. How much of a discount depends on several factors and could range from 5% to upwards of 30% depending on the amount of water that entered the home, whether the home has flooded previously, and the location. An even better strategy would be to implement a buying and holding strategy. Purchase a flooded home or property, fix it up, and rent it for two or three years before putting it back on the market. This allows time for the stigma surrounding Harvey-flooded properties to dissipate and for values to adjust.
How is the value of a flooded house determined?The value of a flooded house is determined through an appraisal. But an appraisal is in essence just an opinion of value, so if you order a property appraisal from 10 different appraisers, then you’ll more than likely end up with 10 different numbers. Until some of these flooded homes are sold on the market, it’s difficult to determine their actual value. The lenders at Noble Mortgage reached out to a few appraisers, and we’ve determined they’re calculating property values one of two ways:
- Using pre-Harvey values: Some appraisers are taking into account what the homes have sold for in the past without applying any discount until they have more data.
- Using post-Harvey values: Other appraisers are actually going through the process of discounting properties based on their opinion.