Do you already know where you want to buy an investment property in 2020? How about Houston? If H-Town is on your mind, here you can figure out the Houston housing market predictions for next year to decide if it really fits your real estate investment priorities.
Drivers of the Houston Real Estate Market
Before we talk about the specific trends to be expected in Houston in 2020, let’s have a look at the main factors which have been driving growth and development in this market.
Population
With a population of over 2.3 million residents, Houston is not only 4th largest city in the entire US housing market but also one of the fastest growing ones, with a population growth nearly double the national average. This is caused by significant net migration as various professionals from different states get absorbed into the Houston labor market. This positive demographic factor is one of the main reasons for the strong performance of the Houston housing market in recent years which is expected to continue in 2020. A large and growing population translates into demand for traditional rentals in the eyes of real estate investors looking for the best places to invest in real estate in 2020.
Economy
Although Houston features a strong economy, it has been traditionally based on the energy sector in general and oil in specific. However, the local economy has started diversifying in the past decade with the advancement of health care, biomedical research, and aerospace. This economic diversification is expected to continue in 2020, which is one of the major Houston housing market trends as it will bring more stability and reassurance to local and out of state real estate investors in residential properties. In this way, they will know that their tenants will have alternative employment options in case the energy industry takes a downturn.
Tourism
Of all economic sectors, tourism is one of the most crucial ones for real estate perspectives, especially in terms of short term rentals. More than 22 million people visit H-Town each and every year, comprising both leisure tourists and business travelers. This number makes Houston one of the most popular housing markets in the US. What this means for property investors is high demand for vacation rentals in 2020. A high Airbnb occupancy rate means a high return on investment for this rental strategy.
Interested in buying a short term rental property somewhere else? Read 10 Best Places for Buying a Vacation Home in 2020.
Performance of Houston Investment Properties in 2020
While no real estate expert has a magic wand to predict 100% precisely how Houston real estate properties will perform in 2020, big data and predictive analytics have given us enough power to come up with very reliable estimates of what this performance is most likely to be. Using real estate comparables and rental comps for H-Town properties, Mashvisor’s investment property calculator has computed the most important indicators in the Houston housing market 2020 for investors. While these figures were calculated in 2019, no major changes are expected to take place in Houston in the next couple of months before the start of the new year.
So, here’s how Houston rental properties are doing at the moment and are predicted to continue doing in 2020:
Houston Real Estate Market 2019 Figures
- Median Property Price: $400,600
- Price per Square Foot: $168
- Real Estate Listings: 1,554
- Days on Market: 70
- Price to Rent Ratio: 18
- Traditional Rental Income: $1,850
- Traditional Cap Rate: 1.6%
- Airbnb Rental Income: $2,160
- Airbnb Occupancy Rate: 47.7%
- Airbnb Cap Rate: 1.1%
To learn more about the current performance of investment properties in Space City, read our Houston real estate market report 2019.
Houston Housing Market Predictions 2020
Now that we know the current state of Houston real estate and understand the reasons for this performance, it’s time to get to the specific Houston housing market forecast for 2020. The trends below are based on a review of predictions by various experts on Houston properties as well as our own real estate market analysis.
Real Estate Prices Will Be Affordable
Affordability is becoming an issue in many US real estate markets in 2020 but not in Houston. Although the median value of homes for sale in Houston, TX will exceed the nationwide average, Houston rental properties will remain significantly cheaper than properties in other top locations for investing in real estate such as New York, San Francisco, Boston, San Diego, and Los Angeles. This trend sparks interest among first-time real estate investors who face limited budgets and restricted financing options.
Home Values Will Appreciate
Good real estate appreciation is another one of the most important Houston housing market 2020 predictions. The prices of houses for sale in Houston, TX are expected to grow at a reasonable, healthy rate, assuring long term profitability for investors without a risk of a housing bubble.
Houston Will Be a Buyer’s Market
Many top places for investing in real estate are predicted to be a hot seller’s market in 2020, but this is not the case with Houston. Houston is and will remain a buyer’s market where homebuyers and real estate investors can enjoy the benefits associated with this kind of market. They will be able to find and buy properties at fair market value without entering into bidding wars with other property buyers. The fact that PwC has ranked Houston as #3 among US markets for homebuilding prospects supports this prediction.
Related: Will the 2020 US Housing Market Be a Seller’s Market or a Buyer’s Market?
Single Family Homes Will Dominate the Market
Similar to other best places for buying rental property, the Houston housing market 2020 will be dominated by single family homes for sale as they constitute about two thirds of all real estate listings in the local market. Once again, this is good news for beginner real estate investors as single family homes make for good, affordable, easy to maintain and manage first-time rental properties. Moreover, they are relatively easier to finance than other property types.
Demand for Houston Rental Properties Will Be Strong
Demand is one of the most important factors for good return on investment on rental properties. With above-average population growth and 57% renters (according to NeighborhoodScout), long term rental properties will be sought after in the Houston real estate market. Another factor which points out to high demand is the medium price to rent ratio to be expected in 2020. Strong rental demand means high rental income and good occupancy rate, which ultimately leads to good rate of return in terms of both cap rate and cash on cash return.
Airbnb Houston rentals will also be well demanded as over 22 million people are expected to visit the city in 2020. A high Airbnb occupancy rate is one of the prerequisites for excellent Airbnb rental income, Airbnb cap rate, and Airbnb cash on cash return.
Related: Where Can You Find Airbnb Occupancy Rate Data for Real Estate Investing?
Airbnb Houston Will Be Legal in 2020
Unlike many other major US cities, the City of Houston has not issued any specific short term rentals regulations or policies. Moreover, Airbnb Houston is expected to remain unregulated and fully legal in the coming year. Both owner-occupied and non-owner occupied short term rental properties will be a feasible real estate investing strategy. This is one of the most important Houston housing market predictions for 2020 as it is expected to attract many out of state investors looking for Airbnb investment property options.
Return on Investment Will Be Good
Houston will be one of the most profitable locations for both traditional and Airbnb rental properties in 2020. If you are an experienced real estate investors, you are probably frowning upon the city average cap rates for both rental strategies, presented above. A cap rate of less than 2% seems like nothing when a good cap rate is usually in the range of 8%-12%. However, you should keep in mind that this is only the cap level cap rate, while the top neighborhoods in Houston for real estate investing offer significantly higher values. Moreover, with the help of Mashvisor’s Property Finder you can locate top-performing traditional and Airbnb rental properties in the Houston real estate market and analyze them in detail with Mashvisor’s investment property calculator.
Furthermore, the return on investment metrics offered by Houston exceed those in other best places to invest in real estate in 2020.
Related: 2020 Cap Rates by City: What Real Estate Investors Should Expect
Short Term Rentals Will Be the More Profitable Rental Strategy
At the city level, the traditional cap rate surpasses the Airbnb one, even if by only half a percentage point, as calculated by Mashvisor’s real estate investment tools. However, at the neighborhood level, Airbnb emerges as the optimal rental strategy. Many Houston neighborhoods offer double-digit rate of return on investment properties rented out on short term basis. The fact that Airbnb Houston remains legal is a strong positive force in this regard.
Best Houston Neighborhoods for Investing in Rental Properties
As you can see from the Houston real estate market analysis above, things are looking good for investment properties in H-Town in the coming year.
So, where should you buy a rental property in the Houston housing market 2020? Well, it depends on your rental strategy. We’ve used Mashvisor’s rental property calculator to put together a list of the best neighborhoods for both long term and short term rentals.
Best Neighborhoods in Houston for Traditional Rentals
1. Greater Fondren Southwest
- Median Property Price: $168,900
- Price per Square Foot: $81
- Average Monthly Traditional Rental Income: $1,340
- Average Traditional Cap Rate: 3.6%
2. Fort Bend-Houston
- Median Property Price: $132,700
- Price per Square Foot: $93
- Average Monthly Traditional Rental Income: $1,150
- Average Traditional Cap Rate: 3.5%
3. Westwood
- Median Property Price: $82,400
- Price per Square Foot: $64
- Average Monthly Traditional Rental Income: $910
- Average Traditional Cap Rate: 3.1%
Best Neighborhoods in Houston for Airbnb Rentals
1. Golfcrest – Bellfort – Reveille
- Median Property Price: $186,700
- Price per Square Foot: $121
- Average Monthly Airbnb Rental Income: $4,070
- Average Airbnb Cap Rate: 16.5%
- Average Airbnb Occupancy Rate: 49.3%
2. Pecan Park
- Median Property Price: $242,000
- Price per Square Foot: $186
- Average Monthly Airbnb Rental Income: $3,110
- Average Airbnb Cap Rate: 12.1%
- Average Airbnb Occupancy Rate: 51.2%
3. Edgebrook Area
- Median Property Price: $193,400
- Price per Square Foot: $108
- Average Monthly Airbnb Rental Income: $3,640
- Average Airbnb Cap Rate: 11.1%
- Average Airbnb Occupancy Rate: 74.6%
These are the most important Houston housing market predictions for 2020. As you can see, things are looking good for real estate investors there. All that’s left is to sign up for Mashvisor now to start searching for the top-performing traditional and Airbnb rental properties in Houston.
