Editor’s note: Inman News Publisher Brad Inman is in Manhattan, waiting out Hurricane Sandy. He will be filing stories as they relate to real estate over the next couple of days. As a journalist, Inman has covered many of California and Florida’s natural disasters, including the 1989 Loma Prieta earthquake in the San Francsico Bay Area and the 1994 Northridge quake near Los Angeles.
By BRAD INMAN
NEW YORK CITY — The expected storm surge from Hurricane Sandy could result in loss of life and billions in property damages, not to mention delay thousands of mortgage loan approvals and home sales.
With the recent exception of Hurricane Katrina, natural disasters and man-made catastrophes tend to have only limited long-term impacts on housing sales, housing markets, and the real estate industry. Earthquakes that hit California in 1989 and 1994 were also setbacks for housing markets, under different circumstances explored below.
In a report issued Saturday, real estate data aggregator CoreLogic estimated that nearly 284,000 total residential properties valued at almost $88 billion are at risk if Hurricane Sandy hits the East Coast as a Category 1 hurricane.
CoreLogic today released data showing the top 25 zip codes in New York City, Northern New Jersey and Long Island markets. Massapequa, located on the South Shore of Long Island, holds the top spot with more than $4.6 billion in total structure value at risk.
After Hurricane Katrina killed an estimated 1,836 people in the Gulf Coast region, destroying or damaging hundreds of thousands of homes and displacing an estimated 750,000 households, it took years for many housing markets in the region to recover.
A report issued four years after the disaster found that the number of homes sold in the New Orleans metro area fell 23 percent from May 2008 to May 2009, with 686 home sales for the month.
When a massive oil spill sullied Gulf Coast beaches and the fishing industry, a $60 million portion of the $20 billion BP Claims Fund for victims was set aside for real estate professionals.
Real estate licensees who could provide documentation for a loss of income or sales could file claims of up to $12,000 for losses related to commercial transactions, commercial real estate income, commercial commissions, rental income, rental commissions, and claims resulting from property damage or other personal claims.
The effect that natural disasters can have on housing markets are certainly localized, but in those areas, they can have a chilling and immediate influence on home buyer confidence and stall mortgage operations, hurting home sales and having even more dire consequences when combined with other economic factors.
The San Francisco Bay Area housing market came to a grinding halt after the 1989 Loma Prieta Earthquake in the fall of 1989. Mortgage operations came to a standstill as lenders were unable to process loans and fearful buyers pulled out of deals. Mid-term, consumer confidence in California real estate was chilled by the looming long-term effect that the threat of earthquakes would have on California real estate.
However, California’s real estate market particularly Southern California, was harder hit by the cutbacks in defense spending in the early 1990s, as part of the peace dividend, and a Northern California tech slump in the 1980s. Then in 1994, the Northridge Earthquake further wreaked havoc on Southern California real estate and again immobilized home buyers as the threat of natural disasters loomed large.
It was not until the late 1990s that the California housing market began to recover.
A restructuring of the earthquake insurance market followed in the middle 1990s, giving consumers better protection and helping to rebuild confidence of buying a home in California. Plus, state and local building codes were modified to make homes safer, though the jury is still out on what these code adjustments actually achieved.
The New York housing market hardly missed a beat after 9/11 with many buyers taking a stand against the force of terrorism by actually buying more homes beginning in 2002. Again, economic factors probably played an important as the New York City economy and the U.S. economy experience record growth levels.
When disasters are of a large enough scale to affect the economy as a whole, that can send alarmed investors rushing into safe havens like Treasurys and government-backed mortgage bonds that fund must U.S. home loans. Investor demand pushes bond prices up and yields down.
When the extent of the Fukushima nuclear accident looked catastrophic, mortgage rates and Treasury yields plummeted, mortgage broker and syndicated columnist Lou Barnes noted at the time.