This article by R.A. Schuetz originally appeared on Houston Chronicle.
Tech, climate change and billions of dollars chasing higher returns are reshaping Houston’s real estate market.
These factors came together in 2019 as a new type of real estate company known as iBuyers charged into the Houston housing market and local firms consolidated. Investors made big bets on flooded properties — with many losing — while venture capital firms poured money into startups looking to disrupt the real estate industry. New technologies helped enable many of these changes.
Across the country, venture capital funds poured record amounts of money into real estate startups, an estimated $14 billion in the first six months of 2019 alone, according to the real estate research company CREtech. The effects of this flood of cash were felt in Houston.
Signs of companies such as Opendoor of San Francisco and Offerpad of Arizona started popping up on lawns of single-family homes. These venture-funded companies pioneered a different business model for the real estate industry by buying homes directly from sellers and then listing the properties themselves.
Known as iBuyers (short for instant buyers), these firms did not operate in Houston at all in the first half of 2018. This year, they purchased 4 percent of Houston-area listings in the third quarter — roughly 300 homes a month at a median price of $208,000, according to an analysis of public records by the real estate brokerage Redfin, which has its own iBuying operation.
On HoustonChronicle.com: Ibuyers make it good to be a seller
IBuyers’ impact reached beyond buyers and sellers. A growing number of local landscapers, contractors, painters and cleaners went to work for iBuyers, getting purchased homes ready for the market within a few weeks.
In the Houston region alone, Opendoor spent more than $11 million on an undisclosed number of contractor services since launching here roughly a year ago. Zillow Offers declined to disclose how much it had spent on contractors in the Houston market, but across the country, it spent $15.4 million fixing up 1,211 homes in the third quarter.
Meawhile, some of Houston’s most prominent real estate brokerages merged. Better Homes and Gardens Real Estate Gary Greene, one of the largest residential brokerages in the Houston area, acquired Heritage Texas Properties in August; the resulting company had a nearly 6 percent share of the market. Connect Realty and Clayton Nash Real Estate merged in November, saying that the combination would allow them to stay competitive in an evolving market increasingly driven by technology.
Financial details of the mergers were not disclosed.
Technology has also helped investors buy large numbers of properties. A Houston company, Entera, uses big data to help investors find homes before they hit the market and place offers on them in minutes. While some investors fix up homes and resell them, others have become part of a growing stock of single-family rentals.
Climate change, however, has thrown a wrench into relying too heavily on past data. After Hurricane Harvey, investors from around the nation rushed to buy flooded homes at a discount with the goal of fixing and flipping the homes for a profit.
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Since then, more than 150 homes purchased by investors within six months of the disaster have entered foreclosure, according to data from Foreclosure Information and Listing Service, a Houston company that reports foreclosures. Investors and lenders said they expected prices to rebound more strongly than they did. That miscalculation has left vacant homes dotting Houston neighborhoods.
Increased flooding blamed on climate change has already cost Texas homeowners more than $76 million, according to one study. Analysts at First Street Foundation, a New York nonprofit that studies flooding, and Columbia University looked at 3 million coastal properties in Texas, and compared the home price appreciation of homes exposed to flooding driven by sea level rise to similar homes that were not. They found that homes exposed to flooding had cumulatively lost out on tens of millions of dollars of home price appreciation since 2005.
Already, banks are ridding themselves of mortgages on homes threatened by natural disaster by selling them to the federal government, according to researchers at Johns Hopkins University and the Canadian business school HEC Montreal, implying they’re aware of the heightened risk of foreclosure.
Includes previous reporting by Perla Trevizo.