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Natural Disasters and Real Estate
August 5, 2021

Natural Disasters and Real Estate

by The CE Shop Team

Forward-Thinking Real Estate Agents Will Need to Consider Natural Disasters

In recent years, communities across the nation have seen an uptick in devastating natural disasters, from wildfires to hurricanes to tornadoes. As communities begin to recover, economic concerns often arise, particularly in relation to real estate.

The Cost of Natural Disasters

The National Oceanic and Atmospheric Administration (NOAA) estimates that weather and climate disasters in the United States between 1980 and 2020 have cost approximately $1.875 trillion. The average number of natural disasters per year is 16.2, but the frequency has been rising in recent years. For example, the 1980s saw 2.9 billion-dollar disasters. By the 2010s, however, that figure had jumped to 11.9. Between 2016 and 2020 alone, the U.S. saw a staggering 8.1 billion-dollar disasters.

Natural Disasters and Real Estate

The ten costliest natural disasters to date are:

  • Drought and heat wave (2012): $34.8 billion in damages
  • Hurricane Ike (2018): $37.5 billion in damages
  • Great Flood of 1993: $38.6 billion in damages
  • Drought and heatwave (1988): $45.4 billion in damages
  • Hurricane Andrew (1992): $51.3 billion in damages
  • Hurricane Irma (2017): $53.5 billion in damages
  • Superstorm Sandy (2012): $75.4 billion in damages
  • Hurricane Maria (2017): $96.3 billion in damages
  • Hurricane Harvey (2017): $133.8 billion in damages
  • Hurricane Katrina (2005): $172.5 billion in damages

Hurricanes

Claiming all top three slots, hurricanes are the costliest and most historically devastating natural disasters. Hurricane Katrina, the nation’s most expensive storm in history, caused more than $100 billion in property damage, including lost material assets, vehicles, boats, public infrastructure, and residential, commercial, and municipal buildings. While Katrina was a particularly devastating natural disaster, the average cost of a hurricane is still high at $21.5 billion in damages per storm.

Drought

Persistent drought and record-breaking heat have devastated the country as recently as the summer of 2021. In Portland, Oregon, for example, late July temperatures neared 100 degrees, a staggering 15-20 degrees above normal. The impacts of drought and heat waves may be less visible than those of a hurricane but remain severe. Effects can include agricultural losses, stunted tourism, and diminished quality of life for residents. It’s estimated that each drought costs approximately $9.6 billion in damages.

Floods

Like hurricanes, floods cause extensive physical damage to communities across the U.S. Property and livelihoods are lost in the disaster and economic development is often stunted, particularly in areas of recurring floods. In 2020 alone, estimated flood damage costs came to roughly $20 billion.

Tornados

Unsurprisingly, the nearly 300 mile per hour winds of your average tornado can wreak havoc on homeowners. Impacts include the mass destruction of homes, businesses, and infrastructure, while automobiles, building materials, and other debris are ripped airborne. The average cost per tornado is $2.5 million in damages. While costs per storm may be lower, the U.S. experiences more than 1,000 tornados per year compared to six annual hurricanes

Wildfires

Unfortunately, wildfires have characterized the American West in recent years. The West Coast and Mountain West area have seen homes and communities destroyed, diminished air quality, and even mud or landslides in the fire’s wake. Wildfire suppression costs an average of $1.6 billion per year.

Earthquakes

While many annual earthquakes are relatively minor, larger events can cause serious repercussions. Earthquakes are considered cascading events, where the initial disaster can set off a chain reaction of subsequent emergencies. For example, the actual event may cause structural damage to residential and commercial buildings, but it may also trigger landslides, fires, and, in the most severe cases, tsunamis. Earthquakes cost approximately $6.1 billion in damages annually. 

How Do Natural Disasters Impact Real Estate?

As it turns out, a sizable 43% of U.S. homes are at high or very high risk of damage via natural disaster. That comes to roughly 35.8 million properties for a total estimated market value of $6.6 trillion. 

What’s more, residents living in these higher-risk areas might see slower home equity gains. Between 2005 and 2015, homes in low-risk areas saw a ~7% increase in average home values while those in very low-risk areas saw a ~10% increase. On the other hand, properties in high-risk areas experienced a nearly 3% decrease in home sale prices — those in very high-risk areas saw a 6% decrease in the same time frame.

While many communities do bounce back after the devastating effects of natural disasters, the increase in frequency poses emerging challenges for both agents and clients.

How Real Estate Agents Can Assist After Natural Disasters

While the outlook may seem a bit bleak, informed agents can help make a difference. Understanding the impact and scope of natural disasters, as well as charting a path forward, can help ease anxieties, position you as a market expert, and get your clients into the right homes.

If you’re new to the area, you may want to study the local natural disaster risks. These risks will vary greatly depending on geography, and long-time residents and new transplants alike may have concerns. You’ll want to know your market like the back of your hand. 

Buyers and sellers can both benefit from disaster-prevention renovation projects, whether that’s installing new storm shutters before move-out or adding a safe room to the new home. Tailor your recommendations based on the market, but championing safety for all clients could certainly set you apart as a forward-thinker.

You may also want to study up on homeowners insurance. Clients may have questions or concerns and, while you don’t necessarily need to be an expert, some guiding knowledge could make all the difference. 

Most importantly, make a commitment to be upfront and honest with your clients when it comes to natural disasters. Buying or selling is an inherently intimidating process, never mind fretting over a purchase in Tornado Alley or a hurricane zone. Unfortunately, it appears that natural disasters won’t be slowing down any time soon so, while you may not be able to control the weather, you can certainly empower your clients, help ease their anxiety, and learn to dance in the rain. 

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