With the rash of hurricanes that hit us this year I was wondering what the impact would be on home prices in the affected areas. Suddenly you have the wholesale destruction of a significant portion of the housing stock in an area, accompanied by thousands of homeless families that need a place to live. Hopefully, a lot of those families have sizeable insurance checks that would allow them to buy new homes rather than rebuild one that was completely leveled. At a minimum many are going to need to rent homes while their old home is being fixed. So I would expect home prices to rise for a few years afterwards but I had no idea how big the impact would be.
However, a few weeks ago CoreLogic published an article where they looked at this precise issue and basically concluded that hurricanes do push up home prices. One of their case studies looked at home prices in coastal New Jersey and New York counties after Hurricane Sandy and compared the changes there with the changes in home prices in the associated census division. What they found was significant outperformance for a couple of years afterwards – 3.2% per year higher price appreciation.
They found a similar effect in other devastated areas. In fact, in New Orleans there was so much distruction that home prices soared at an annual rate of 18% for a while. Too bad Chicago doesn’t get hurricanes, right?
However, there is also a bit more nuance to these stories. For one, there is actually price underperformance in the first few months after a hurricane – probably because a hurricane really distracts people from looking for homes for a while whether they already live in an area or are planning to move there.
But a hurricane can also hurt a housing market in the long run, as it did in New Orleans, if the devastation is so great that people abandon the city. In that case it kills demand, which is exactly what I think is going to happen in Puerto Rico.
Gary Lucido is the President of Lucid Realty, the Chicago area’s full service discount real estate brokerage. If you want to keep up to date on the Chicago real estate market, get an insider’s view of the seamy underbelly of the real estate industry, or you just think he’s the next Kurt Vonnegut you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.