Okmyung Binn and Craig Landry from the Center for Natural Hazards Research of the East Carolina University assessed that after Hurricanes Fran (in 1996) and Floyd (in 1999), real estate prices were hit badly in Pirr County, North Carolina. Floyd, which was worse than Fran, caused a lot of flooding, destroying over 4,300 structures and caused over $346 million in losses in this county.
These two men found that prices dropped by 6% after Fran and 9% after Floyd in the flooded area over 2-3 years after each of the storms when compared to real estate prices in other areas. But a few years later, by 2004-2005, these lower prices and discounts had disappeared, that happened even much sooner than researchers had anticipated. This whole study will be published in the next issue of the Journal of Environmental Economics & Management.
Until today, it is not yet sure how many buildings and homes were destroyed by Hurricane Sandy. Still, an analysis by CoreLogic, a real estate data provider, estimated on Oct 27 that over 75,000 homes ($22.5 billion) in New Jersey and 82,000 in New York ($35 billion) were at risk. The cost of this damage is estimated to be at $50 billion according to Eqecat, an organization that creates models of catastrophic risks.
Still, there is some good news to property owners. According to an analysis conducted by the Federal Reserve Bank of Dallas in October 2010, values could be driven up by the decrease in the numbers of available housing. The research looked at thirteen hurricanes and 99 cities and towns that were significantly damaged on the southern and eastern coast from 1988 to 2005. Anthony Murphy, a coauthor of the study, said that local economies in the area were disrupted and a small fall in income did occur, which had it’s effect on real estate prices as well. However, this effect was soon lost because of the lack of housing supply. Murphy with his coauthor said that due to this, prices increased about 3-4% of what they would normally be in 3 years.
Another discovery was that the effect on housing prices varied greatly according to the density of the area. Murphy says that in suburbs where there is less population, values didn’t grow that much because there was less demand and houses were not destroyed as much. In current case it means that prices will probably rebound quickly in areas with high population, like Hoboken, and it could take somewhat longer to restore the real estate market to the same level in suburbs like Edison and New Brunswick in Middlesex County, New Jersey.
In working class, higher density neighborhoods, such as Coney Island or Far Rockaway in New York, recovery can also take longer because most homes there are not likely to have had flood insurance. There was a survey conducted recently in the northeast areas, the results showed that only about 14% of homeowners had flood insurance. This number is probably higher than the real rate in neighborhoods with lower- or middle-income households. This means that rebuilding will take much longer. According to a USA Today report from 2007, after Hurricane Katrina areas that were reconstructed with private money as well as insurance funds were finished much sooner than in areas with public funding.
However, money is not the only issue when it comes to getting flood insurance. Bin and Landry from the Center for Natural Hazards Research think it’s also because of the “availability heuristic” – people don’t know about how big the risks are when they buy a house that is located an area that is prone to hurricanes.
After Fran and Floyd hit Pitt County, in 1998-2000, people bought four times more flood insurances than they had bought before. However, by 2003 it fell 47% since everyone had forgotten about these disasters and didn’t renew their flood coverage. Landry says that right after the storm, people can visualize how a flood looks like and what it can do. Over time, these memories go away and you don’t think about the risks anymore.
Peele saw the same in Cape Hattera after it had been hit by 4 hurricanes in just 9 years. People who buy property there don’t let the possibility of future hurricanes influence their decisions since they love the area.
Walter Moloney from the National Association of Realtors says that Hurricane Sandy should not have a big influence in the real estate market in the national perspective. According to NAR, this year should be the best in 5 years when it comes to home sales and the increase should be around 9 percent. 2013 should also see an 8-9 percent rise according to NAR.
New Jersey ranked 11th among all 50 states for home sales and Moloney acknowledges New Jersey’s significance in the real estate market. He says that tt will take long until sales in damaged areas are recovered, however demand may rise in areas surrounding the damaged region.
According to CoreLogic, New Jersey was even before getting hit by the Hurricane Sandy on second place in terms of high inventory of foreclosure homes and the third state in September for home depreciation. Bill Keogh, the president of Eqecat told a week ago that when this data is combined with the damage caused by Sandy, real estate market can be low for a long time.
On the positive side, construction activity for replacing damaged homes will increase significantly. Tom O’Grady from the National Association of the Remodeling Industry proposed that there will be more activities conducted on the East coast due to the destruction caused by Hurricane Sandy. However, the storm came on a bad time since there is less lumber available in winter and according to Gary Vitale, North American Wholesale Lumber Association’s president told Reuters that wintery weather conditions set a limit to how fast repairs can be made.
People who lost their homes and loved ones because of the storm can’t be expected to see the bigger picture and Peele feels sorry for these people. Peele says it will take time and people have to work together to come back stronger.