Houston's slow appreciating real estate... (Bellaire, West: sales, real estate market, lease)

[TootsieWootsie]

Can anyone give me an intelligent answer to why Houston has such slooooow appreciation on housing and real estate? I am guessing because there is so much free land still.

[EasilyAmused]

Depends what part of town you are talking about. Inner Loop and West side has had anything but slow appreciation rates. Most homes have double and many have tripled in the past 10 years. Value is in the land location, seldom the structure.

The burbs don't appreciate because there are so many of them and they keep buidling like the world in on fire. There is no "location" demand there to drive property value. Value is in the structure, which does nothing but age.

[TootsieWootsie]

Had a house in Bellaire right next to West University. It took 20 years to go a tad over double....20 years. On the other hand, my house in popular Ravenswood of Chicago--at the same price originally in 1982--went 10 times the original amount. Real estate in Houston...forgetaboutit! Not worth the wait to profit...too long.
But I do agree with what you say. Inside the Loop is the only place it might appreciate at all for years and years.

[Guerilla]

Originally Posted by TootsieWootsie

Had a house in Bellaire right next to West University. It took 20 years to go a tad over double....20 years. On the other hand, my house in popular Ravenswood of Chicago--at the same price originally in 1982--went 10 times the original amount. Real estate in Houston...forgetaboutit! Not worth the wait to profit...too long.
But I do agree with what you say. Inside the Loop is the only place it might appreciate at all for years and years.

Depends on where you are.

[EasilyAmused]

Yeah, Bellaire hasn't achieved what others areas did.

[Mom2Feebs]

It's the nature of the beast--supply vs. demand and accessibility. With the 80's being what they were all the way into the early 90's, it is no wonder it took the last 20 years to double your value.

Most of the inner loop/ W. U./Bellaire properties more than doubled over 20 years, but I don't know where you were in Bellaire, or any other facts about your property.

I suspect if we had the type of commuter infrastructure that Chicago has, along with the same kind of density and zoning (that's a big one right there), we'd be in the same boat.

[moritz391]

Originally Posted by TootsieWootsie

Can anyone give me an intelligent answer to why Houston has such slooooow appreciation on housing and real estate? I am guessing because there is so much free land still.

I would agree that certain areas ARE appreciating reasonably rapidly, and would take out Bellaire because it has become much less fashionable versus say, Southampton, but I would also put the following forward:

1.) Houston's primary revenue source is real estate taxes. I have lived in Houston and am moving back, but currently live in Philadelphia. In Philadelphia, we have an incredibly high business and personal income tax burden from both the city and the state (for me, well over 10% of gross income). Real estate taxes, however, are quite low. My $1.3m house is only $1600/year with an abatement for new construction. The same house in a comparable neighborhood Houston (say the Museum District) would probably run about half that. But the taxes would be over 10x as great, as taxes are roughly 3% of sales price (versus the .12% I pay).

This puts a great deal of pressure on purchase prices. If one puts a decent bit down, taxes can equal half of the mortgage. Taking a look at housing as a matter of monthly outlay, this would mean the same money (ignoring income taxes) could afford a roughly 50% more expensive house elsewhere with very low taxes. And looking back at income taxes, mortgages are underwritten with gross income, not net. So less tax-burdened houstonians applying for a home loan don't get a credit for not paying income taxes, but do get dinged for high property taxes. And as such, generally don't qualify to purchase as expensive of homes as elsewhere.

I would tend to say that this is not a bad thing. Given the current housing crisis, a lot of people have taken on a great deal of bad debt to buy over-priced houses. Houston's tax system does prevent values from rising, but it also leaves people with more cash and doesn't exclude the middle class from buying homes, as is the case in cities such as LA and NYC.

2.) There is also the issue of zoning. A lot of cities make building incredibly difficult if not impossible. In many of the best areas of Philadelphia, for example, it would be illegal to demolish or rebuild most of the old houses. Not only are many buildings without any historical significance historically protected, but the current zoning code doesn't allow to rebuild as such high densities. As such, building or renovating is an incredibly expensive and difficult process. Similarly, there are many empty areas very near downtown which are being protected for some theoretical factories to come back to restore the 19th century economy. People would love to build there, but they cant.

This creates an artificial scarcity. Moscow is an extreme example of this. After the fall of communism, no one could figure out who had the right to sell or own parcels. Those few properties which are able to be bought or sold are nowhere near the number demanded. As such, the few people who actually want to buy a flat in moscow have to contend with the even fewer properties available. The market is in fact one of the most expensive in the world even though Moscow is not really 'desirable' in the sense of New York.

Houston doesn't have that issue. In Houston, in fact, the most desirable areas see almost as many tear-down sales as 'normal' sales. In most urban markets, there is more or less no concept of 'land value.' Houston is one of the few more-or-less rational real estate markets in the country because of this.

Again, it may not mean that people think they have riches in home equity, but it will likely mean that the city will continue to grow and enjoy a healthy economy in the coming decades while other cities struggle.

[tstone]

Originally Posted by EasilyAmused

Depends what part of town you are talking about. Inner Loop and West side has had anything but slow appreciation rates. Most homes have double and many have tripled in the past 10 years. Value is in the land location, seldom the structure.

This just proved the point of the OP. A home doubling value in 10 years is nothing to brag about. That's about a 7.15% rate of appreciation, without figuring how much repairs or whatever else you want to include costs you.

[moritz391]

Originally Posted by tstone

This just proved the point of the OP. A home doubling value in 10 years is nothing to brag about. That's about a 7.15% rate of appreciation, without figuring how much repairs or whatever else you want to include costs you.

A 7.15% growth rate is quite strong. Over the life of a 30-year loan, that means the house will be worth 8x the original cost. How is that not good? You DO get to live in a house in addition to earning money on the asset. I think people have profoundly strange expectations with regards to how much money should be made in real estate. The past decade has really just been a matter of having too much cheap money available.

[EasilyAmused]

I dunno. I made over 500k, after remodel costs, in a little house I bought in the mid 90's for 250k. I don't think I could make that kind of return on any investment except if a relative died. If I held it today, it would be worth 200k even more. What I paid in mortgage would have only leased me a townhouse. I think I did a'ight. I currently own a house mortgage free because of it.