How have home prices behaved after previous major Hurricanes?
Veros Real Estate Solutions has published a report looking at real estate markets after 5 major storms. All the cities that experienced these massive hurricanes experienced higher levels of home value appreciation in the year after the storm than the year before.
There may have been other factors impacting house prices in the year prior to and the year following the hurricanes that were unrelated to the hurricane itself. For example, house prices might have been going up rapidly in a given market simply due to an overall seller’s market in that city at the time of the storm. This was certainly the case with Ft. Myers in 2004 during Hurricane Charley.
To mitigate the effect of other factors outside of the hurricane and to normalize the appreciation statistics, the appreciation of each city pre- and post-hurricane was taken as a percentage of the US national average appreciation during the same timeframes.
Overall, the same trend is observed. For example, in the year prior to Katrina, New Orleans had appreciation of 97% of the US average appreciation. In the year after Katrina, the average appreciation skyrocketed to 109% of the US average – an increase of 12%! For these five storms, the post hurricane annual appreciation (as a percentage of average US house price appreciation) ranged from a low of 2.4% to a high of 11.9% more than the annual appreciation in those markets prior to the storm. The average increase was 6.6% Thus, both methods of analyzing the data show the same results.
At first blush, this may seem like a surprising result, but it all comes down to supply and demand. People whose homes have been severely damaged have to find a new place to live in the short term while their home is being repaired. This causes demand to increase for an existing pool of housing inventory. Likewise, some of the inventory of homes to purchase will have been damaged by the storm thereby reducing the supply. Increased demand and reduced supply for an asset means (all other things being equal) that there will be upward price pressure. Thus, post-hurricane housing markets follow classic economic theory.
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- Andrew Oliver, M.B.E., M.B.A.
Real Estate Advisor
800 Laurel Oak Drive, Suite 400, Naples, FL 34108
Licensed in Massachusetts
If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, please contact me on 617.834.8205 or Andrew.Oliver@Compas