Florida Gulf Coast Housing Was Rocked Like A Hurricane

• FEMA Enables Home Construction In High-Risk Areas By Pricing Out The Private Insurance Sector
• Sales And Prices Generally Normalize One Year After The Catastrophic Event
• More Affluent Consumers Enter The Impacted Housing Market

Hurricane Helene slammed into the Florida Big Bend region last night, killing at least seven people in the state. The deadliest aspect of the hurricane was the storm surge that was expected to be as much as 20 feet. But I’m not telling you anything you haven’t seen in your news feed already. After a major hurricane event like this, what happens to the local housing market?

First, Hurricane Sandy T-Shirts Were Born

After Hurricane Sandy inflicted significant damage to Manhattan in 2012, the extensive flooding cut the power south of 39th Street. Unfortunately, our office is on 38th Street, and there was sheer darkness around it. Notice that the only big office tower lit in the above photo was owned by Goldman Sachs, which had the foresight to run a power cable under the Hudson River to connect with New Jersey. But the reason I bring any of this up was because someone was incredibly entrepreneurial and sold t-shirts hyping “SOPO” (South of Power) as a new Manhattan neighborhood. I found out about it too late in the day, and they were already sold out!

FEMA Needs New Goals

Before I get into the post-Hurricane analysis, it’s important to remember that the Federal Emergency Management Agency (FEMA) prices flood insurance so low that the private insurance markets can barely compete. U.S. and state taxpayers shoulder a lot of the risk. FEMA actually encourages home building in climate-threatening locations. We see that climate change risk is reflected in increased weather volatility, with more significant and more frequent catastrophic events occurring each year. This means that home insurance costs to cover flood events will continue to expand.

Is Home Insurance Affordable And Available?

The average cost of flood insurance in Florida is $958, but over $2,000 in high-risk areas. That seems relatively cheap to me, given the frequency of hurricane events in the state each year. The state tweaked the flood insurance market, helping to return profitability to Florida insurers (while making sure the phrase “climate change” was not in any documentation) to insure a functioning market, paying claims faster but reducing the amount of coverage. It’s called Citizen’s Property Insurance Corporation, and it was designed as an insurer of last resort. The following NY Times home insurance profitability infographic can be expanded or reviewed within the source article. It’s nice not to see New York and Connecticut at the top of the list.

Hurricanes’ Impact On Housing Prices And Sales Volume

There is a fascinating white paper on this very topic from the Counselors of Real Estate, a terrific real estate organization where I hold a CRE designation: How Major Hurricanes Impact Housing Prices and Transaction Volume. Their paper looks at the conventional wisdom of post-hurricane behavior that causes the affected market to surge into a bubble.

“We find some evidence from our three measures
suggesting that during the first two quarters following a
major hurricane, changes in home prices and transaction
volume in the affected Zip Codes experience a temporary
relative decline, followed by a positive correction. This
temporary dip and bounce-back pattern exhibits charac-
teristics resembling a short-term reversal consistent with
the overreaction hypothesis, as often applied to financial
market events. When looking at one full year following a
hurricane, however, we see some evidence that areas hit by
hurricanes outperform comparable areas not affected by
the storm, a counterintuitive result.”

The Urban Institute published What Happens to Housing Costs after a Hurricane? earlier this year on the rental market impact after an event:

“[We] find that more intense prior-year hurricanes correspond to increases in median rents via declines in housing availability.”

National Bureau of Economic Research (NBER) published HOW HURRICANES SWEEP UP HOUSING MARKETS: EVIDENCE FROM FLORIDA in 2020.

“We find that incoming homeowners in this period have higher incomes, leading to an overall shift in the local economic profile toward higher-income groups. Our findings suggest that market responses to destructive natural disasters can lead to uneven and lasting demographic changes in affected communities, even with a full recovery in physical capital.”

Final Thoughts: What Happens After The Storm

The general theme is that housing prices and sales resume their typical trends about a year after the event. Florida seems to have partially fixed their access to home insurance problem. The above NBER study makes a point that I also found to be true after Hurricane Sandy. Middle-class housing in Long Island that was washed away during the storm surge, particularly on the South Shore of Nassau County, was replaced with higher-end housing. Presumably, higher-income consumers are more likely to rebuild in flood zones because they can afford the higher insurance. Proximity to the water for the middle class is expected to erode over time.

Did you miss yesterday’s Housing Notes?

Housing Notes Reads

• Hurricane Helene insured losses projected at $3B-6B [Business Insurance]
• Home – Public – Citizens Property Insurance Corporation [Citizens]
• Florida Flood Insurance Guide (2024) [Market Watch]
• What Happens to Housing Costs after a Hurricane? [Housing Matters]

Market Reports

• Elliman Report: Manhattan, Brooklyn & Queens Rentals 8-2024 [Miller Samuel]
• Elliman Report: New York New Signed Contracts 8-2024 [Miller Samuel]
• Elliman Report: Florida New Signed Contracts 8-2024 [Miller Samuel]

Extra Curricular Reads

• Do We Really Need to Take 10,000 Steps a Day for Our Health? (NYT Published 2021)