Houston, TX: 19.1% Return on Investment (2011)
Houston differs from many other markets in that its values were severely depressed during the 1990’s, because of low energy prices. This led to a significant degree of value appreciation from 2000 through 2007, but a moderate contraction after the financial crisis that temporarily stabilized when the government home subsidies were available. After the subsidies expired, values in Houston resumed a course of moderate volatility. This is reflective of a fundamentally under-valued market that is regressing toward its rational value. Currently, approximately 31% of listings are from foreclosures.
With the backbone of Houston’s economy coming from the energy and medical research industries, the city possesses an attractive employment base with a high percentage of residents who rent. These factors combine to create an attractive investment environment with a strong base of tenants and the potential for continued value appreciation if market prices in Houston regress toward the national average in 2011 and beyond. Values appear to be at a bottom as we exit 2010, and are expected to increase modestly in 2011 and beyond. The fundamental economics of the city are quite favorable to investors, since the current ‘weak dollar’ strategy of government monetary policy is likely to escalate energy prices, which will continue to benefit Houston’s business climate.
Houston offers a very balanced ROI profile that is evenly spread out between healthy cash flows, modest value gains, and leveraged appreciation. It shares many characteristics in common with other markets in Texas, in that it is driven by a relatively high concentration of renters who are seeking to avoid directly paying the high property taxes that are charged by the state. This effect serves to cap value escalation since there are less people in the homebuyer market, and creates an ideal marketplace for income property investors. These characteristics make Houston a favorable place for income property investors.