The Market for New Construction Homes in Houston Is as Hot as Texas
Often referred to as “Space City,” Houston, TX is best known for being the home of NASA, but this expansive metro has more to offer than space missions – especially for real estate investors.
Despite COVID-19, 2020 was a recording-breaking year for the Houston real estate market – surpassing more than $35 billion in sold property. Single-family home sales increased for the 11th straight month, with more than 9,000 homes sold. The average multifamily home sales soared more than 110%, reaching $246,940.
New construction permits for residential real estate in Houston increased 21%, signifying the same national trend of very high demand for single-family homes. New construction and single-family rentals are the largest real estate investing opportunities in Houston.
The State of Houston’s Real Estate Market
Houston has one of the largest and hottest housing markets in the country. The Texas metro spans across 637 square miles, nine different counties, and the Houston MSA has more than 100 different cities, towns, villages, and incorporated areas.
In addition to its acclaimed aerospace industry, Houston also has deep roots in other industries such as healthcare, energy, manufacturing, transportation, and the gas and oil industry. Houston boasts a strong, diverse job market and is also home to several prestigious colleges and universities including the University of Houston, Rice University, and Texas Southern.
People are flocking to Houston for its job market and selection of colleges and universities, which is putting more of a strain on an already tight housing market. As more people continue relocating to Houston, the rental market is boosted by the strong pool of potential tenants who are looking to rent because Houston is currently a major seller’s market.
Bidding wars and multiple offers on homes are pretty much normal in Houston’s real estate market. The vigorous sales activity combined with fewer homes for sale is driving single-family home prices higher. A hot real estate market can be ideal for investors looking for single-family homes and new construction investment properties in Houston.
When people can’t afford to buy a home, they rent instead, which has helped bolster the rental market in Houston. In the Houston metro area, 52% of the households are occupied by renters—demonstrating the strength of demand for real estate investors looking to purchase an SFR portfolio or start a build-on-your-lot Houston project.
New Construction in Houston is Booming
Newly constructed single-family homes are popping up like mushrooms around greater Houston, with the city securing its status as the busiest home construction market in the country.
A recent report from the National Association of Home Builders shows that 48,208 new construction permits were issued for single-family homes in Houston in 2020 – ranking the city No. 1 among U.S. metros for single-family new construction permits issued in 2020. According to data from the Texas Real Estate Research Center, the number of single-family home construction starts was 18.9% in 2020. Low mortgage rates and robust population growth boosted housing demand across the state last year.
This year, demographic trends like the aging millennial population and out-of-state migration will continue to propel housing demand, the Center says.
The number of single-family construction permits is expected to rise 15% statewide through 2021, Luis Torres, a research economist at the Texas Real Estate Research Center, said in a release. Torres also predicted that single-family home sales around the state will see an 8.4% jump this year.
“Homebuilders are trying to satisfy demand in the lower price [categories] by building homes in the suburbs or outer city borders where land costs are lower,” Torres added. “This trend was prevalent before the pandemic but has become even more widely adopted over the past year.”
The growth of new construction homes in Houston has paved the way for build-to-rent investors to also find success in the market. The build to rent market has flourished for real estate investors who are strategically investing in new housing developments. Build to rent real estate development has been one of the fastest-growing trends in the real estate rental market for several years, with the boom going into high gear last year. Nationally, build to rent single-family properties have increased 27% from 2019 to 2020.
Single-family rental homes create two great opportunities for investors: the ability to collect monthly rent and secure home price appreciation. During the pandemic, home appreciation in Houston soared to double digits. One in four single-family homes sold in Houston has been purchased by investors, according to John Burns Real Estate Consulting. Additionally, more than 7,500 build-to-rent homes have popped up in the Houston area.
Houston’s build to rent boom is good news for renters who are waiting out the homebuying frenzy but still want the perks of having a backyard, neighborhood living, and good school districts. It’s also good news for investors looking for ways to add to their portfolio while capitalizing on the market’s insanity.
What Does This Mean for Investors?
No question, Houston, TX is a great market for real estate investors. From 2014 through 2020, homes in Houston appreciated by nearly 31%. During the same period, the average monthly rent in Houston increased by 12%. Houston’s rental market is holding strong – a huge positive for rental investors. The city was hit hard with pandemic-induced job loss, but its rental vacancies are at their lowest point since 2016. Average monthly rent is also steady – sitting at $1,464.
Investors should feel confident with those stats because it shows property values in Houston are appreciating at a faster rate than in other cities across the U.S., while rent increases have slowed down just a little. Houston’s real estate market presents great potential for investors looking for strong cash flow opportunities as they scale their portfolios.
Like the rest of the country, Houston has a housing supply problem. Over the past few months, it has been recovering at a faster rate than most markets around the country. The city currently has a 1.8-month supply of houses, which is larger than most real estate markets but still below the 6-month supply generally considered a balanced market. More importantly, permits are up in the area, too — namely single-family homes. In February alone, Houston saw almost 4,300 single-family permits issued.
The future of Houston’s real estate investment market is build-to-rent housing. Based on current demographic trends, the single-family rental market will likely be undersupplied over the next 10 years, creating a strong market opportunity for build-to-rent housing over the next decade. Roughly 6% of new single-family homes in Houston are purposely built to rent. Keeping that pace could result in about 700,000 new homes in Houston over the next 10 years.
With all the buzz surrounding Texas real estate markets in cities like Dallas and San Antonio, it might be easy to overlook Houston. But don’t sleep on the Bayou City. Houston offers real estate investors outstanding value and accessibility to a major U.S. housing market.
While inventory might be harder to find, investors with strong real estate investment strategies can still profit. It’s now more important than ever to have a lender capable of helping you:
- Secure a loan with the best price and maximum leverage for your next rental investment
- Close properties quickly and certainly
- Run your construction or rehab projects smoothly
Lima One Capital offers that and much more for real estate investors. We are experts in financing new home construction for builders on urban in-fill, spec homes, model homes, and teardown/rebuild projects. Our team of experienced professionals will help guide you through getting a new construction loan for your next investment.
If you’re interested in obtaining a loan for investment property in Houston, Texas, call us to learn more. Get started today and scale your rental property portfolio with Lima One, the nation’s premier lender for real estate investors.