To answer your question, it is important to understand exactly what is on your house. If your siding is rotting, your siding is either wood or a faux-wood pressboard siding. In Houston, homes built in the 1970s and later almost always had pressboard siding in the non-brick areas. Pressboard was also often (but not always) used for soffits, fascia, and trim.
So, exactly what is this material? It is a hardwood-pressboard siding that is a combination of wood fiber, wax, and resins, which is fused under heat and pressure, and then laminated on both sides to create a “hardwood” siding finish. It was originally manufactured by large companies such as Masonite, Louisiana Pacific, Weyerhaeuser, Champion, etc. (Sometimes it is called “masonite” in the generic sense, but that doesn’t mean your siding was not made by one of the other manufacturers). The material was initially guaranteed not to rot when it came on the market in the 1970s, but no one gave it an accelerated weathering test back then to see how the siding would hold up under extreme weather conditions, like the heat and humidity of the Gulf coast.
So, just a few years later, after the siding was exposed to different sources of water (such as rain, splashing from runoff, sprinklers, high humidity, etc.) much of that “lifetime” siding began to swell along the bottom edge of each plank, and the wood fiber-resin-paper combinations began to draw water into the board between the two layers of lamination. This drawing up of water came to be known as “wicking”. Gradually, the panels would “wick” the water higher and higher up the wall and feed the water into the siding panel it overlapped with, and then into the space inside the wall. Unless you were experienced with the product and knew what to look for, you could not tell the wicking process was happening, because the laminated covering hid the fact that the material inside the boards was filling with water and beginning to rot. Further research showed that the rotting process sometimes went on for 2-3 years before there were any visible signs, but by then it was too late… the boards were already coming apart. There were at least six lawsuits filed during the 90s that earned class-action status, and the court-ordered fund to compensate homeowners ran out of money around 2003 or 2004, so there is nothing left to be recovered. Yet, many home builders continued to install the product on their new homes throughout most of the 1990’s, and some didn’t stop using it until 2002, when it was finally (and mercifully) taken off the market, where it is almost universally forbidden to be used as exterior material on any residential construction.
So, what are these signs that your siding is absorbing water? The pictures below will give you an idea; all of these pictures are “before” shots of jobs Advanced has done. Usually the first thing you can see is that the bottom edges of panels, particularly along the lower part of the wall closest to the biggest supply of water, begin to swell and the layers of pressboard begin to expand and separate. As the bottom edges continue to expand and swell, more water is allowed to enter and the rotting process accelerates. Once that happens, you will see bubbles forming under the laminate finish, and/or pieces of the panels beginning to crumble, and/or nails that were used to install the siding are being pushed out, and/or some extreme warping.
So to answer your question, once you start to see visible signs of rotting, that means your siding has been absorbing water for at least 1-3 years, which means that if water has not already seeped into your wall, it will begin to do so very soon. And then you begin to risk some very significant damage that can be very costly to repair.