Agent Essentials

Shop Talk - The Real Estate Agent Podcast

Real Estate Agent Podcast Episode 73: Natural Disasters

Episode 73: Natural Disasters
August 11, 2021

Natural disasters have lasting impacts beyond the physical damage inflicted on a community. It’s important to recognize what they are and how they can do lasting damage.

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.

About This Episode

Natural disasters are tragic, and the damage they inflict on communities can cause ripple effects that lasts for years. Beyond the physical damage, there are subtle lasting effects that can leave a community crippled. It’s important to understand what they are, how to spot them, and how they influence your housing market. 

Additional reading:

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Episode Transcript

BRETT: When a natural disaster hits, the damage done both physically, financially, and psychologically can last years.

These impacts involve the entire community, homeowners, renters, and business owners. Given that a sizable 43% of U.S. homes are at high or very high risk of damage via natural disaster, it’s more important now than ever to understand natural disasters as they influence the real estate market.

BRETT: Hello and welcome to ShopTalk, the real estate show. I’m Brett Van Alstine and in this episode we’re talking about Natural Disasters and the impact they have on communities.

It’s easy to see the wreckage caused by natural disasters on the outside, but let’s dive into four subtle impacts on real estate, post-disaster, that cannot be ignored.

BRETT: The first is increased delinquency rates.

Not only do natural disasters inflict physical damage, they also ruin households' finances, which results in increased mortgage delinquency rates. There were huge spikes in delinquency rates three months after Hurricane Katrina — and this spike also happened after natural disasters like Hurricane Harvey ($75.4 billion), according to a report from Kiplinger. After the storm, “damaged properties within FEMA designated counties saw a 205% increase in 90+ day delinquency while properties estimated to have no damage saw a 167% increase in 90+ day delinquency”, according to Amy Gromowski, CoreLogic’s Senior Leader of Science and Analytics.

Mother Nature doesn’t hold prejudice and inflicts damage on both residential and commercial real estate alike. If office buildings are destroyed, then residents can’t go to work, which fuels the delinquency issue.

If households don’t have discretionary income as a result, then local businesses experience a drop in business - and the cycle continues

BRETT: Natural disasters' impact on the housing market is more straightforward. If a family’s home is destroyed, they become displaced and need a new home in which to live.

Already having planted roots, these families typically want to remain close to their current neighborhood. According to a study conducted by the Federal Reserve Bank of Dallas following the impact of hurricanes on a national scale, “the typical hurricane strike raises real house prices for a number of years [after the storm].”

This increased demand inevitably puts a strain on the remaining inventory for up to three years after the initial disaster, which drives up home prices in these communities that are already struggling financially.

What’s more, residents living in 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.

BRETT: Rental prices are also shaken up in the wake of a disaster.

Not surprisingly, those unfortunate enough to lose their homes who can’t afford to purchase a new property in an increasingly competitive market often become renters instead. With residents displaced, a natural increase in rental housing follows, and this new demand causes rental prices to rise.

This change is typically seen three to six months after the disaster, feeding the long cycle of increased prices, decreased incomes, and delayed payments as the area looks to recover.

BRETT: The last impact that often is overlooked is expensive repairs.

For those whose homes aren’t completely destroyed but require repairs, urgent restoration is understandably hard to come by. Contractors, construction workers, and related resources are typically preoccupied with the task of rebuilding or repairing everything that’s been impacted, and their services become more expensive for consumers as a result.

With hundreds of homes and properties damaged, the strain happens fast and can last for months. And, if a contractor is tied up with work, it can be challenging for residents to use their insurance to cover the costs let alone secure the proper permits for the work that needs to be done.

BRETT: The impact isn’t just physical, either - those who live through a disaster are often impacted psychologically as well. Natural disasters have the power to influence homebuying decisions.

For coastal communities in states like Texas, Florida, South Carolina, and New York that are most often affected by floods or hurricanes, homebuyer trends will shift to properties that are on higher ground and further away from potential disaster zones.

This response to natural disasters will not only center on location but also renovation opportunities. Home renovation projects to protect homes from natural disasters aren’t new, but they are also on the rise as of late.

In addition to renovating with protection in mind, households in warmer climates are seeking more energy-efficient homes in response to rising temperatures. This shift means buyers will likely opt for newer, more efficient homes, homes with solar panels, or homes that have purposely been renovated to use less energy in order to keep total energy costs down during the high heat of summer.

At the end of the day, natural disasters do not discriminate between energy-efficient new builds and haggard-but-loved generational homes. But as an agent, you have a unique opportunity to support your clients when disaster strikes and offer a helping hand when they need it most. Be the hero your town deserves and offer your clients world-class service come rain or shine.

BRETT: That’s it for this episode, thanks for listening! If you enjoyed the podcast, you can subscribe to us and leave a review on your podcast player of choice. Join us next time for a talk with Lennon Lee and Stony Stonebraker, co-founders of Passivo REI. Shop Talk is a production of The CE Shop.