After the Rain: The Lasting Effects of a Hurricane on Home Sales

It's not just about flooding or a damaged roof – a hurricane in your hometown can impact the housing market for months.

U.S. News & World Report

After the Rain: The Lasting Effects of a Hurricane on Home Sales

PORT ARTHUR, TX - AUGUST 31: A flooded street is seen after the area was inundated with flooding from Hurricane Harvey on August 31, 2017 in Port Arthur, Texas. At least 37 deaths related to the storm have been reported since Harvey made it's first landfall north of Corpus Christi August 25. (Photo by Joe Raedle/Getty Images)

The impact of Hurricane Harvey and the other recent storms could be felt in the form of delays, long-term damage and a lasting stigma toward the properties and places that underwent the worst damage.(Joe Raedle/Getty Images)

This summer’s hurricane season shocked many, as storm after storm hit U.S. soil and caused insurmountable damage to homes, land and commercial property.

Hurricane Harvey made landfall in Texas on Aug. 25 rated a Category 4 hurricane. It brought high winds and flash floods, and continued to wreak havoc for nearly five days. Two locations – Nederland and Groves, Texas – reported more than 60 inches of rain. The Harris County Flood Control District estimates about 136,000 flooded structures, roughly 10 percent of structures the county has on its appraisal record.

On Sept. 10, Hurricane Irma struck the Florida Keys as a Category 4 hurricane, making its way up the state after eventually being downgraded to a tropical storm. Even as a tropical storm, buildings throughout coastal Florida and even inland were damaged from high winds, heavy rains and debris.

While the devastation for Houston and South Florida was extensive, it still wasn’t the end for storm destruction on U.S. soil. Puerto Rico suffered the wrath of Hurricane Maria, a Category 5 hurricane that made landfall on Sept. 20. Getting emergency aid to island residents remains a major obstacle, not to mention the manpower required to address the extensive property damage.

The repeated weather hits have put a spotlight on the continued efforts by cities, residents, nonprofit organizations and the Federal Emergency Management Agency to help affected areas recover.

But the hurricanes’ destruction doesn’t stop at the immediate problems residents faced as they returned to their homes once the winds died down and floodwaters receded. The damage continues as the real estate industry in affected areas came to a screeching halt and continues to see delays in property sales.

Looking specifically at the impact on home sales, closing dates that fell during the hurricane had to be rescheduled. But once each hurricane cleared, everything has had to be re-evaluated. Even for homes that didn’t experience damage, lenders have had to push back final approval of mortgages because loan underwriters couldn’t get into the office, says Bruce Elliott, a Realtor in the Orlando, Florida, area and president of the Orlando Regional Realtors Association.

“It’s because they couldn’t get in to do their work, so it’s a domino effect along the way,” Elliott says.

And for a place hit particularly hard like Houston, the numbers reveal an abrupt change in property sales: Between the five days before Hurricane Harvey struck Houston and the five days after the storm left the area, home sales dropped by almost 96 percent, according to HomeLight, a real estate information company that uses data to pair homebuyers and sellers with real estate agents.

While Houston has since managed to return to prehurricane sale rates per HomeLight data, the lasting effects of a hurricane continue in the form of delays, long-term damage and the possibility of a lasting stigma toward the properties and places that underwent the worst damage. We’ve examined the toll storm damage takes on the individual real estate transaction and the larger market and how it can play a role in determining housing market’s future success.

What Happens to Real Estate Contracts?

For obvious reasons, when the forecast says a hurricane is imminent, you should clear your meeting schedule. For the days the Houston area and other parts of Texas faced heavy rains, high winds and flooding, real estate transactions were put on hold. But once the rain stopped, picking back up wasn’t as easy as running in for a quick closing the next day.

“Almost all of our contracts that were pending and on their way to the closing tables when Harvey hit were pushed back. … Some were delayed as much as two weeks,” says Irma Jalifi, a Redfin agent in Houston.

With a pending transaction at risk, it’s important for any damage to be assessed – and hopefully repaired – as quickly as possible. Buyers and lenders each have valid reasons to be concerned not just for a damaged roof or broken window that occurred during the storm, but the possible mold from moisture that could wait months to reveal itself.

As soon as the storm passes, it becomes the seller and listing agent’s duty to provide immediate updates on the property – as any damage or time it takes to make repairs can further delay the deal. “[The buyer is] wanting to come back and hear from the seller if there has been any damage, and if so, to what extent,” says Ross Milroy, owner and broker at Ross Milroy Realty in Miami.

Even when there isn’t damage, those updates are necessary to keep the buyer – and by extension, the lender – satisfied that the deal can proceed. Photo evidence that rooms look the same, or notes on problems and a plan for repairs, should be a priority once the hurricane has passed.

While sellers need to be proactive in getting the real estate deal back on track, Milroy says his experience in Miami shows few buyers abandon a deal. They’ve already made a decision to purchase in a part of the world that is prone to tropical storms, so unless the property is no longer livable, a hurricane event likely won’t deter them.

“In my experience, people will not [cancel the contract], they’ll remain dedicated to closing things out,” he says.

The lender, however, can be another story. If a property has been damaged, the investment is at risk, so the lender typically requires a reassessment of the property to determine its worth. A significantly decreased appraisal value due to damage could require the buyer to pay more out of pocket, make seller to agree to lower the sale price or kill the deal.

“Sometimes the underwriter, the actual bank … will not let a buyer assume responsibility for damage that has not yet been repaired,” Elliott says.

Housing Markets Take a Hit

Widen the view a bit and you see that the dilemma one pending home sale faces is occurring with every other home sale, though some are smoother than others.

Jalifi says none of her contracts fell through in Harvey’s wake, and only one contract from another agent on her team was canceled. “Most people were willing to stop, consider what happened, what were their options in terms of their immediate home needs and where they wanted to be for the future, and realized they still wanted to be there, so they moved forward,” Jalifi says.

Milroy says buyers in the Miami area, for the most part, “remain dedicated to closing things out,” rather than backing out of a deal.

Still, the continued interest doesn't mean the market won't shake a bit. According to data provided by Milroy, total monthly sales from Miami-Dade County dropped rapidly from more than $300 million in August to around $250 million in September. Milroy credits the drop to a significant decrease in new listings and delays in closing for reassessment.

Looking Back: Katrina

It’s hard to assess the devastation from three separate hurricanes this year and not recall past storms that caused excessive damage to homes and took hundreds of lives. Florida still talks about Hurricane Andrew in 1992 and Hurricane Wilma in 2005. Hurricane Sandy wreaked havoc all the way up the Atlantic Coast in 2012, with significant damage to the Jersey Shore.

And, of course, there’s Hurricane Katrina.

Katrina changed New Orleans forever when it struck in August 2005. Katrina and its aftermath claimed more than 1,800 lives and total damage cost nearly $106 billion, according to Encyclopedia Britannica. It wasn’t just the strength of the storm that led to the extensive damage, but a combination of lack of infrastructure to reduce hurricane damage and a delayed FEMA response.

Like with any major storm, home sales came to a screeching halt in New Orleans during the hurricane, but then continued to limp for long after the flooding stopped. HomeLight information reveals it took six months to reach roughly the same level of sales prior to Katrina. Even after that, the New Orleans housing market failed to see continued growth for the remainder of 2006.

In the years since, Hurricane Katrina has largely become an unwelcome part of New Orleans’ narrative – homes gutted in the flooding still stand as a scary reminder of what can happen in a hurricane and afterward.

When comparing Katrina with the likes of Harvey and Irma, the drawn-out aftermath likely – and hopefully – won’t repeat history, says Sumant Sridharan, chief operating officer of HomeLight. “The size and scale of Katrina was just a lot more significant than Harvey,” Sridharan says.

HomeLight data found Hurricane Harvey caused only a short-lived decrease in the number of homes sold, returning to pre-storm levels by mid-September, with home prices holding steady.

Puerto Rico, on the other hand, will likely see a much longer recovery period than Houston and South Florida. Not only is the storm damage far more significant on the Caribbean island, but the U.S. territory lacks enough economic infrastructure to quickly recover from the near-total devastation.

The fact that it’s an island far from the U.S. mainland also contributes to complications in providing aid. Hurricane Maria's damage has also brought to light federal policies that appear to serve as an additional hindrance to both Puerto Rico’s economic success and potential to get help in the aftermath of the storm, and as with New Orleans, may be a reason the hurricane long remains a part of Puerto Rico's narrative.

Expectations Going Forward

Any market impacted by a natural disaster will have a recovery period – even if sale levels return quickly, it’s reasonable to expect continued issues with labor shortages for repairs, mold problems in the coming months and additional delays in closing deals.

Milroy says one struggle real estate agents face following major storms in Miami is managing sellers’ expectations for market prices to remain the same. To sell directly following a hurricane, “your seller has to be willing to take less money,” he says.

While lenders have to clamp down on pending transactions to ensure no buyer inherits hurricane damage, Elliott says he’s also seeing banks largely being understanding toward homeowners now facing financial difficulties as they try to get their property back to normal.

Buyers who are struggling to make their mortgage payments are being offered some leeway, according to Elliott. A homeowner may miss a payment or only be able to pay a reduced amount temporarily, which the bank is allowing, noting it will touch base with struggling borrowers in a couple months to reassess the situation, Elliott explains.

Delays are also coming in the form of a labor shortage. People are receiving insurance money to cover repairs, but the people to make those repairs are swamped. Elliott says contractors and laborers in the Orlando market are in even shorter supply as a result of Hurricane Harvey hitting Houston first – those with construction skills went to Houston knowing the work would be needed and available.

Hurricane Irma Wreaks Havoc

MIAMI, FL - SEPTEMBER 09:  The skyline is seen as the outerbands of Hurricane Irma start to reach Florida on September 9, 2017 in Miami, Florida. Florida is in the path of the Hurricane which may come ashore at category 4.  (Photo by Joe Raedle/Getty Images)

Should People Be Living Differently?

The particularly rough hurricane season brings climate change to the forefront of conversation, including the possibility of more devastating storm seasons in coming years. But is that conversation enough to make people rethink where they live?

Jalifi says native Houstonians certainly aren’t rethinking their hometown as a result of the hurricane – the area is already prone to flash floods, after all, and that doesn’t drive people away. Most transplants she’s dealt with are excited enough by the job and cultural opportunities Houston offers to look past Hurricane Harvey.

The one contract that did fall through on her team was a result of the buyers opting to move back to Maryland, citing the hurricane as a bit too much to handle. While the mid-Atlantic may be less hurricane-prone, Jalifi is quick to point out: “Every part of the country has crazy weather.”

In Orlando, which wasn’t hit directly by Irma (at that point a tropical storm), Elliott says the majority of damage came from debris due to high winds, along with some relatively minor flooding. As those who were evacuated from the coastal parts of South Florida returned to their homes, they started seeing Orlando as a more attractive option. As a result, Elliott says he’s already gotten three new clients from coastal Florida looking for a less stressful place to live: “They want to be inland, and they’re looking where in Florida has the least damage.”

For those staying farther south in the Miami area, Milroy says he doesn’t expect much to change in the wake of Hurricane Irma. He saw few people actually evacuating, or even preparing their home for the hurricane, once it was in the forecast.

“People get complacent, and people are very short-sighted and forget very quickly,” he says.

Only time can tell whether 2017’s hurricane season will lead long-term hardships in affected markets in the same manner as New Orleans following Hurricane Katrina. Whether there will be a reaction among residents or a change in housing demand in these markets also remains uncertain.

Another hurricane season with repeated hits on major cities in the next few years could have an impact on real estate in the U.S. states surrounding the Gulf of Mexico, manifesting in the form of changes to building code or even a shift in seasonality in real estate that sees a natural decrease toward the end of August in anticipation of major storms.

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