While the latest hurricane in a string of immensely powerful storms—Maria—has left Puerto Rico in a state of chaos and desolation, Hurricanes Harvey and Irma continue to haunt Florida and Texas where residents are struggling to adapt after weeks of cleanup to remove debris from the streets. Roads are heavily damaged from flooding and homes are destroyed. What does this say for the real estate market in these areas?
“Just in our business alone, a lot of transactions will fall out; there will be a lot of lost revenue for agents and brokers,” said Ron Peltier, chairman and CEO of HomeServices of America, at RISMedia’s 2017 Real Estate CEO Exchange earlier this month in reference to the hurricanes. “I don’t think it will right itself any time soon.”
Houston was hit particularly hard. Mark Woodroof, partner at Better Homes and Gardens Real Estate Gary Greene Realtors®, described the cleanup logistics in Texas as overwhelming. Houses are flooded, and furniture and drywall insulation are out on the curb waiting to be picked up.
While brokerages offered support for agents affected by the storms, it will be a long road to recovery. Sixty-two agents from Woodroof’s office alone were impacted.
“We had eight of our own team members severely affected, yet our whole firm, community, business leaders, friends and family came together to assist in rebuilding,” says Nimesh Patel, owner and managing partner of RE/MAX Fine Properties in Sugar Land, Texas. “As for future business, we are very confident in our agents and our community; we will be on our feet and on top very soon.”
Immediately following the storm, the majority of Florida dealt with downed trees and roof leaks. The Florida Keys took the brunt of the damage, while inland regions are already recuperating. Rei Mesa, president and CEO of Berkshire Hathaway HomeServices Florida Realty, has 40 offices throughout Florida, all of which are up and running at normal capacity. Other than scheduling delays due to evacuations and dangerous weather conditions, transactions are mainly on track to close, if they haven’t already.
“Florida is resilient,” says Mesa. “There were delays due to repairs, re-appraisals and re-inspections, but we’ve become very good at forecasting the impact .”
Texas business continued on, as well. Woodroof’s offices closed on over 500 homes in September despite flooding caused by Harvey.
Other Florida brokerages relied on the Force Majeure and Risk of Loss sections of their standard contract to protect both sellers and buyers during their transactions.
“Our mortgage and title teams were essential in communicating about the federally mandated re-inspection guidelines and working with vendors to schedule them as soon as possible,” says Drayton Saunders, president of Sarasota, Fla.-based Michael Saunders & Company.
Contract protection and homeowner’s insurance may not be enough, however, for sellers that did not have any or a sufficient amount of flood insurance. Many are looking to FEMA for financial aid. Over 200,000 applications in Texas and Florida have already been approved for individual assistance.
While the impact of these storms may discourage some individuals from moving into hurricane-prone areas, Saunders predicts a bigger focus on new construction or homes equipped to handle hurricane-force winds.
“We expect there will be more emphasis put on homes (new and old) that have upgrades such as impact windows and other hurricane-related construction features. Sellers will also have to understand that buyers will be factoring these into their perception of value in addition to location and overall property condition,” says Saunders.
Mesa is also optimistic that Harvey and Irma did not drive buyers away.
“It’s a destination state with no state income tax, great diversity and high employment. Net migration to Florida will continue to be positive,” says Mesa.
However, if new construction or weather-proofing upgrades are the key, buyers may not have these options for a while. Harvey and Irma slowed down the new construction market and building plans by overextending an already dwindling quantity of construction workers.
“As recovery efforts move forward, the pre-hurricane shortage of construction workers will likely hamper the process of rebuilding efforts, and further limit the pace of new-home construction, as the limited labor supply shifts away from new-home construction to rebuilding efforts,” says First American Chief Economist Mark Fleming.
National Association of Home Builders (NAHB) Chief Economist Robert Dietz doesn’t believe this shortage in labor supply will correct itself anytime soon.
“The rebuilding efforts will require tens of thousands of additional construction workers, heightening the existing issues regarding access to labor,” says Dietz. “Estimates from the Bureau of Labor Statistics reveal the number of open, unfilled construction sector jobs increased to 232,000 in July, nearly reaching a post-recession high.”
It may be too early to tell the long-term effects, but Fleming says the impact on the housing market will be considerable.
“The Houston metropolitan area and the impacted Florida counties alone accounted for 8.0 percent of all U.S. existing-home sales in 2016,” says Fleming. “We expect existing-home sales to decrease in the short-run, as loan closings are rescheduled and some borrowers with pending contracts withdraw their bids on damaged homes.”
The Federal Reserve says past experience has shown these storms will not affect the national economy over the medium term. Lawrence Yun, chief economist at the National Association of REALTORS® (NAR), also believes there will be more of a short-term impact, with lost business returning next year.
“Sales will be impacted the rest of the year in Houston, as well as in the most severely affected areas in Florida from Hurricane Irma; however, nearly all of the lost activity will likely show up in 2018,” says Yun.
According to the Houston Association of REALTORS® (HAR), the monthly housing market indicators produced varied figures because of Harvey. Single-family homes fell 25.4 percent—the first decline this year. Housing inventory, however, grew from a 4.0-months supply to 4.4 months, which may lower if residents in need of housing come out in full force to buy repaired or undamaged homes.
“Hurricane Harvey dealt a severe blow to the Houston area and Texas Gulf Coast, and it will probably be several weeks until we can gauge the storm’s full impact on our housing market,” says HAR Chair Cindy Hamann. “Home sales were humming throughout the first three weeks of August, but the moment Harvey struck the region, everything came to a screeching halt.”
Past real estate market behavior in Florida suggests that long-term impact on home-buying desirability is unlikely.
“Our part of the West coast of Florida has also seen very few hurricanes, but having tracked the market very closely after the last major storm in 2004, we did not see long-term changes in buyers’ desire for the Florida lifestyle,” says Saunders.
While hurricane season may be winding down, the crisis in Puerto Rico will be ongoing post-Maria and natural disasters will continue to crop up all over the world. Their impact on real estate markets may be uncertain, but Leading Real Estate Companies of the World® (LeadingRE) Chief Economist Marci Rossell remains optimistic about the economic effects of these events.
“The economy’s true strength comes not only from its physical capital, but from its human capital, and natural disasters tend not to have an effect on that,” says Rossell.
The proof is in our response to these events.
“Out of what was a devastating situation for hundreds of thousands of people, what stood out was the number of Houstonians that were out rescuing people in their boats and helping people get out of their homes,” says Woodroof.
Stay tuned to RISMedia for more developments.
Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at email@example.com.
For the latest real estate news and trends, bookmark RISMedia.com.