Houston is considered the riskiest multifamily market nationally for apartment investors, according to a new report.

MPF Research calculated the risk level and probability of a rent recession in apartment markets across the country. The multifamily arm of Carrollton, Texas-based Realpage (Nasdaq: RP) looked at a variety of factors, including rent, absorption, occupancy rates, inventory and local economic trends, over a period of nearly 20 years.

 Houston ranked No. 1 nationally for the riskiest apartment market. San Francisco, San Antonio, San Jose and Austin rounded out the top U.S. cities with the riskiest apartment markets, according to MPF Research.

“It should come as no surprise that Houston is currently flashing red and takes the title for our riskiest market,” MPF Research’s report said. “Houston remains an unstable market, provided the general momentum of economic and apartment market variables.”

MPF Research pointed to Houston’s apartment rents, which have contracted year over year over the past two consecutive quarters — meaning Houston is in a rent recession. Rents on an annualized basis have fallen more than 1 percent in the fourth quarter of 2016, the weakest rent performance since the Great Recession. In fact, MPF Research found that rents in Houston’s high-rise apartments fell the most nationally in 2016.

Occupancy rates have also weakened year over year, sliding in four of the past five quarters. There’s a silver lining, however: Houston continues to attract new residents, albeit more slowly, and absorption levels remain elevated, according to MPF Research.


However, income growth has weakened and personal bankruptcies have ticked up as energy companies laid off thousands of workers in high-paying jobs amid the oil slump. This comes as apartment developers have delivered thousands of luxury Class A apartments in popular neighborhoods across the Bayou City. Developers flooded the Houston market with more than 26,000 new apartment units in 2016, forcing many apartment operators to offer between two and three months of free rent.

“The bad news seen in the weak rent and occupancy data is compounded by the fact that Houston is seeing strong net inventory growth,” MPF Research’s report said.

On the other hand, Houston is a solid choice for home investors, according to HomeUnion, a California-based online real estate investment management firm.

Single-family home investors, particularly from California, are drawn to Houston’s relatively affordable homes and strong returns. The Bayou City has the No. 11 highest capitalization rate nationally at 6.9 percent, according to HomeUnion. Cap rates are an indicator for the return on investment for a single-family home rental during the first year. The median price for an investment home in Houston is $162,900.

Still, Houston’s home rental market hasn’t been immune to the oil slump. The median rent for single-family homes is expected to fall 0.4 percent to $1,591 per month in 2017, according to HomeUnion.

“Though losses in the energy sector caused Houston to experience a drop in the number of new jobs in the market, the economy is recovering nicely today,” Steve Hovland, director of research at HomeUnion, said in HomeUnion’s report.

Written by Paul Takahashi –