Houston’s hot real estate market and its impact on real estate investors

Houston’s real estate market is scorching hot. The latest statistics on Houston’s real estate market we’re released last Friday and I wanted to share with you some interesting highlights:

  • Real estate sales rose for the 16th straight month. Higher sales were recorded in all price points except for properties priced under $80k. Any guesses on what the majority of properties are in that price range? (Hint: They’re owned by banks)
  • Inventory of properties for sale is 4.7 months! That’s the lowest that statistic has been since 2002. The market is tight and sellers are back in the driver’s seat due to high buyer demand.
  • Average and median sales prices are rising, too. So this isn’t the end of 2010 where sales were creeping higher because of lower selling prices.
  • Foreclosure sales are down double digits: Now they account for 16% of sales when in January of this year they accounted for 28%. So if banks are holding the infamous “shadow inventory”, it must not consist of Houston properties.
  • Last but not least, rentals of single family homes rose again while average rents remained high, although off July’s back to school record highs.

Market’s Impact on Real Estate Investors

The latest data is yet another indication that the strong Texas economy and its job creating prowess are contributing to a strengthening real estate market. But what does it all mean for real estate investors? How does it impact their quest to find quality investment properties? Well, if you’re a real estate investor of the “you make your money when you buy” variety that worships at the altar of “built in equity”, there will be scarcity in your future. Discounted properties won’t exactly be extinct but they will be so few and far between that competition will drive up prices eating up that precious equity that drew you there in the first place. The reason for this scarcity is that the owners of discounted properties are well aware of the new market reality as well. With inventories down to less than 5 months, first time home buyers fresh off the proverbial fence and primed to take advantage of ridiculous interest rates are scooping up the dwindling foreclosure inventories. After all they do have first shot at most foreclosures through protected first look periods. And then the scraps that are left over are fought over by aggressive investors trying to acquire as many discounted properties before the window closes completely.

If instead you believe that you truly make your money when you successfully execute a sound investment strategy over a long period of time (10+ years) as we advocate on this site, there are good news for you in these latest figures. First, the rental market continues to strengthen with rents holding strong at record levels. So if execute your Blueprint strategy and acquire well located properties that are new, newer or well maintained for a fair price, there will be a strong income stream to support the growth of your capital base through the aggressive pay down of the property’s mortgage. Second, in a tight market such as this one where demand dominates supply, prices rise which increases your internal rate of return exponentially. Last, as the wide majority of equity investors fight over a very limited supply of properties, you can pursue a fair deal in a calm and profitable fashion.

References: HAR Press Release 

Photo Credit: Jody Sticca via Compfight

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  1. […] was surely coming and no one was sure their job would still be there next week. These days, the Houston real estate market is hot, rents are increasing every year, vacancies are low to nonexistent and investment property interest […]

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