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  • Writer's pictureSujata Shyam

Market Spotlight: Houston, Texas MSA

Everything’s bigger in Texas, right?

Well, that can be said for the real estate market as well. In the Great Recession of 2008, as many coastal real estate markets tanked, Texas continued to grow steadily, with strong job and population growth. 

That growth in multiple Texas markets has continued over the last several years, and investors from around the country are flocking to Texas markets to find good deals.

In this article, we’ll dive into the Houston market and why it’s on our radar as one of the top-growing markets you might want to consider investing in.

Why We Love Houston

“Houston, Tranquility base here. The Eagle has landed.”  – Neil Armstrong

Nicknamed “Space City,” Houston will forever hold a place in history as the location where the first words were heard from the lunar surface in 1969.

These days, Houston is a powerhouse metropolitan city and is known for many things, including the oil industry, the Texas Medical Center – the largest medical center in the world, and a broad industrial base in energy, manufacturing, aeronautics, and transportation.

On top of that one of the key factors we look for in any market we invest in is livability. That is, do people enjoy living in that market, and is the quality of life high enough to attract new residents from other markets and states? Houston checks all those boxes as evidenced by being ranked as the third best place to live in Texas in 2020-2021 by US News.

In addition, we also look for strong job growth, population growth, and job diversity – all of which are the cornerstones of what makes Houston such a strong market.

Where Houston Is In The Market Cycle

One thing you should know about Houston that makes it unique is that it’s in a different part of the market cycle than many other US markets.

Due to the 2015 oil crisis and Hurricane Harvey, Houston experienced major economic shocks to its employment and real estate market, which set back its expansion cycle by two to three years, meaning that Houston still has a lot more room to grow.

Expansion is an exciting market cycle because it’s where the economy starts to get rolling again. Vacancy rates start to decrease and new construction starts to pop up, with more and more as the expansion phase continues.

Absorption rates pick up as more people go back to work or upgrade jobs, and the pickup in income brings moderate to high growth rates in rents. Property values start increasing until the end of the cycle where they’ll peak.

The best time to get into a market is at the beginning or middle of this cycle and sell toward the end (when property values peak), before the market starts declining again.

Let’s Talk About Oil

Before we go further, let’s address the elephant in the room – oil. There’s no doubt the Houston market is tied to the oil market. Houston had the same lockdown approach as most large metro markets, and the global shutdowns reduced oil and gas demand by approximately 15% resulting in the lowest oil prices in history.

In April of 2020, oil traded at a NEGATIVE $40 per barrel. The U.S. and Canadian rig counts, historically averaging approximately 1,500 active rigs, dropped to 278 in June before “recovering” to 410 at year-end.

With only one-third of average rigs active, the companies engaged in engineering and oilfield services that support the upstream energy sector were hit very hard.

Sounds bad right? Think again! Energy demand is projected to surpass supply through year-end 2021 and oil prices have recovered to the high $40s per barrel as of this report.

All indications are that we will see oil prices with upside pressure as reserves tighten and new production gradually comes online. This bodes well for the energy sector to see some stabilization and recovery in 2021 and this is why I  here at Luxe Capital feel the market will make a full recovery and be stronger than ever moving forward in 2021.

Houston – A Central Geographic Location

The city of Houston, Texas, is located in the southeastern part of the state near the Gulf of Mexico. Houston is the most populous city in Texas and the fourth most populous city in the United States – behind New York City, Los Angeles, and Chicago.

From the Port of Houston to the Houston Airport System, the city has an impressive array of logistical and distribution channels capable of meeting the demands of today’s fast-paced market.

Added to the region’s central geographic location, Houston has easy access to the global marketplace, making it an ideal place for businesses looking to engage in international business.

Texas is the largest exporter in the United States and Houston has 17 sister-city relationships promoting business opportunities across Africa, Asia, Australia, Europe, and the Americas.

Why People Are Moving To Houston

Known as the Bayou City for its waterway system, Houston thrives because it is a great place to work and a great place to live. Alive with energy and rich in diversity, Houston is a dynamic mix of imagination, talent, and first-class attractions that makes it a world-class city.

Houston exudes a cosmopolitan and down-home vibe while being nicknamed the “Space City.” With more than 2.3 million residents, Houston attracts visitors and transplants with a wonderful mix of world-class arts, booming business, pro sports, and award-winning cuisine.

Houston’s downtown has been revitalized with numerous clubs, professional sports facilities, and musical entertainment that has helped bring nightlife back to downtown. As one of the few U.S. cities with resident companies in theater, ballet, symphony, and opera, Houston’s Theater District, located downtown, offers visitors and residents alike exciting performances all season long.

The city also shows its devotion to the arts through a full complement of art museums and critically acclaimed galleries in its Museum District. Countless cutting-edge chefs have made a home in Houston, where diners eat out more than residents of any other city. There are more than 10,000 restaurants in the Houston area with culinary choices that represent more than 70 countries and American regions.

This stylish dining scene only provides a glimpse of Houston’s epicurean offerings, a fact that the city’s culinary masterminds intend to prove with the Houston Culinary Tours.

Houston’s Job Growth, Population Growth and Rent Growth

From 2015 to 2020, jobs increased by 2.3% in Houston-The Woodlands-Sugar Land, TX from 3,276,633 to 3,350,731. This change outpaced the national growth rate of 1.3% by 1.0%. Although Houston’s economy, mainly the energy and oil sectors, plateaued during COVID-19, the pandemic did little to stymie interest in the wealth of industrial assets here.

  1. Amazon is building two fulfillment centers in the area. An 850,000-square-foot facility in Richmond is expected to create 1,000 jobs, while another, 1 million-square-foot project is underway in neighboring Missouri City.

  2. Texas A&M University System and Medistar Corp. broke ground in August on Innovation Plaza, a half-billion-dollar project adjacent to the Texas Medical Center.

  3. Oil company SABIC has already started hiring for a $10 billion joint venture project with Exxon Mobil Corp., set to come online in 2022.

Houston ranks among the leading metropolitan areas in the U.S. in population growth and is the fourth-largest city and the fifth-largest Metropolitan Statistical Area (MSA) in the nation.

  1. Houstons’ MSA consists of nine counties, and as of 2020 the region’s population has increased by 7.6% since 2015, growing by 507,666.

  2. The population is expected to increase by 5.4% between 2020 and 2025, adding 388,203 new residents.

  3. Other states, notably California, are losing companies and residents to Texas. The recent relocation of Hewlett Packard to Houston is a prime example of the growth coming to Texas. We expect this trend will continue to the benefit of Texas cities, including Houston.

The rental market is holding strong. There’s a lot to feel positive about if you’re a rental investor in Houston. Despite renters getting hit hard with pandemic-spurred job losses, Houston rental vacancies are at their lowest point in years. What’s even better?  Rents are modestly growing. The median rent sits at $1,464 — up about $100 over the last five years.

After the median home price jumped by 13.4 percent in 2020 to $281,800, many people searching for residences have opted to rent instead of buy. The suburbs in particular are garnering more attention from tenants who are prioritizing space after the rapid adoption of remote work and the quarantine experience.

This is great news for multifamily investors, as demand for apartments in the Houston area continues to rise.

Why You Should Consider Investing In Houston

Often, by the time you hear about a hot market, everyone else has heard of it too, and thus much of the growth has already happened.  However, given Houston’s unique place in the market cycle. this makes it the perfect moment to consider this dynamic market to invest in.

If you’re looking for new markets to invest in to build and diversify your portfolio, we highly recommend you look into Houston. And if you’re looking for passive investment opportunities, we invite you to invest alongside us as we invest in Houston and other top real estate markets around the country.

Are you are ready to get started in your real estate investing Journey? Join our Investor Club - it's free. Become a member here.


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