Houston Housing Market Recovers Quickly From Harvey

Over four days during the last week of August, Hurricane Harvey inundated much of eastern Texas, Louisiana and surrounding areas, dumping more than 40 inches of rain  in some places. As the first major hurricane to make landfall in the U.S. in 12 years, many expect the final financial toll of the storm to number in the tens of billions. Even though it will be years before anyone can understand the true cost of the massive storm, we are already learning lessons and seeing positive developments in its aftermath that could be useful for future hurricane survivors, as well as people in almost any city where economic recovery is a concern.

Even as the Harvey recovery effort was barely a few weeks old, the economic powerhouse that is Houston, Texas, was already showing remarkable signs of resilience. For at least the last decade, Houston has been ranked among one of the fastest-growing cities in the U.S. According to a 2016 report from the Census Bureau, the city grew by an average of about 400 new residents per day  between 2014 and 2015. It had also been posting strong numbers for housing construction: 40,000 new homes per year, equal to around 7 percent of the entire American residential housing market.

With numbers as strong as these, many were understandably concerned that Hurricane Harvey would bring Houston's growth spurt to a grinding halt. But a report from The New York Times cast doubt on these very early worries. Real estate brokerage service Redfin told the Times that out of 45 active home purchases in progress before the storm hit, only eight were ultimately canceled. In fact, the company began receiving about as many viewing requests as it had before Harvey only one week after raining had stopped, even though much of the city was still underwater.

Scale of destruction in Houston

How could this be possible? By the time Harvey had moved out of the Houston area, it was estimated that at least 25 percent of Harris County, which includes most of Houston, was flooded. Around 32,000 people were reported to have been displaced from their homes in Texas alone as a result of the storm. But even this high level of destruction might not be able to knock the city off balance for too long, at least as far as the housing market is concerned.

The Times reported that economist forecasts project that prices for undamaged homes in the Houston area will start rising quickly as demand far outpaces their supply. Contractors and laborers who work for them also stand to benefit in the storm's aftermath, since a shortage of workers will drive up the cost of repairs. Eventually, most expect the pace of new home construction will return to pre-Harvey levels, perhaps much sooner than many would expect. 

The reasons behind such a fast recovery have to do with a simple fact: Houston residents have been putting up with floods for many years. Widespread flooding is known to occur in the area even from storms that aren't considered hurricanes, a phenomenon seen as recently as the so-called "Memorial Day flood" in 2015. Houston is famous for its lax zoning laws, allowing countless developments to spring up in flood-prone areas. The solution is to simply build new homes higher - the Times spoke to one developer who said he wouldn't build anything less than one foot above official flood forecasts created by the Federal Emergency Management Agency.

Hurricane fraud warnings

When homeowners can live in or build a house that meets these requirements, they can expect some level of protection from routine flooding as well as flood insurance, which is almost never sold otherwise. That leaves a sizeable portion of Houston's residents in better shape than most after Harvey's destruction, but there is still more to worry about.

The Federal Trade Commission wrote Aug. 30 that it had been receiving a surge of reports of attempted insurance fraud among Texas and Louisiana residents. The FTC noted that most reports involved homeowners receiving robocalls from a company claiming to be their insurance agent, warning listeners that they were past due on flood policy premiums. Such scams are known to proliferate in the immediate aftermath of a hurricane.

As a warning to potential victims of these fraud cases, the FTC advised homeowners to be highly skeptical of such calls. To verify the status of their insurance policy, the FTC told homeowners to call their insurance agent directly. Those who are insured through the National Flood Insurance Program were advised to call that program's hotline.

If you need more information about the housing economy; please contact your local Vectra Bank.