Everything that we know about real estate points to the fact that the housing market is relatively stable. It’s not so easily shaken by most external events.However, what the Florida real estate market is witnessing at the moment in the aftermath of Hurricane Michael begs the question:
What kind of impact can a major hurricane like Michael have on the housing market?
The Immediate Effects of Hurricane Michael on the Florida Real Estate Market
Housing Supply Shortage
Hurricane Michael landed near Mexico Beach on October 10th, 2018. Labeled as a Category 4 hurricane, Michael’s winds reached a whopping 155mph, almost meriting a Category 5 label. These winds tore through the roofs and walls of residential property- both apartment buildings and single family homes. As a result of the damage to the housing supply, thousands of residents in Florida’s Panhandle were left homeless and displaced.
Exact forecasts of the cost of damage to property in Florida still vary as local officials focus on finding homes for the displaced population. However, according to an analysis from CoreLogic, commercial and residential property loss in Florida will amount to somewhere between $2 and $3 billion.
Related: 5 Residential Real Estate Trends Affecting the Housing Market in 2018
Even with the combined efforts of local real estate firms and officials, there just aren’t enough undamaged rental units for those in need. Besides turning to FEMA for housing aid, there have been a few proposed solutions to remedy the current housing crisis in the affected Florida real estate market areas.
For example, owners of short term rentals and condos have been asked to skip out on Florida’s vacation rental season. It can be the busiest time of the year for these vacation rental owners, as travelers from the colder states come down seeking warmer winters. However, they are being asked to convert their short term rentals into long term rentals to provide housing for local residents. Still, this solution has some legal implications attached to it that need to be sorted out first. And in some cases, owners are simply refusing to rent to residents from the destructed neighborhoods.
As a result, thousands are still left looking for permanent shelter or living in damaged, unsafe property. This housing supply shortage is a typical effect of most natural disasters that the US has faced over the years. Currently, in the aftermath, it’s one of the biggest impacts on the Florida real estate market. While in the near future, this will spark new construction and hopefully a push for affordable housing, for now, it remains a major issue.
Sales Volume and Sales Price Drop
It’s to be expected that after a hurricane as devastating as Michael, there would be negative effects on the housing market. According to an analysis from Realtor on the natural disasters in 2017, 18-32% of home sales are delayed or disrupted in the month of a disaster. Another study published by the CRE shows that typically in the quarter following a hurricane, there is a noticeable decrease in both the volume of sales transactions as well as sales price.
This can come after what experts refer to as a “stalled market.” This refers to the time immediately after the disaster where no transactions are taking place. Everyone in the market is trying to pick up the pieces, so naturally, we wouldn’t expect buying and selling to go on, business as usual, in the Florida real estate market. This is also due to the lack of undamaged residential property to buy and sell and the number of homeowners waiting on insurance money to make any kind of move.
However, while some local agents expect a stall, others are reporting the exact opposite in Bay County, for example. Agents there say that transactions that started before the hurricane are now carrying on and in closing. Others are getting calls from investors looking for opportunities or simply homeowners looking to sell and leave the area for one reason or another.
To start looking for investment opportunities in Florida, click here.
There’s also the fact that plenty of housing that sustained minor damages will be quickly repaired and placed back on the market. Because of this, experts weighing in say there will be no tangible stall and the market will continue on as normal.
The Short-Term Effects of Hurricane Michael on the Florida Real Estate Market
Demand for Rental Property and Home Prices Spike
Because the amount of property in Florida’s Panhandle that was left unscathed is limited in the affected counties, demand will soon rise from those who don’t wish to leave the area but need a place to stay.
Basic real estate knowledge tells us that when supply is limited and demand rises, real estate values surge. Experts predict that we will likely see this phenomenon in the Florida real estate market soon after insurance claims have been processed and people start confidently making decisions again. Add to that the fact that as repairs are made to properties, they will be brought up to code and enhance the overall quality of the housing supply in the market. This means homeowners and property investors will be getting more for their properties on the market.
A few studies have been carried out and while there are conflicting results among them, for the most part, they prove that there is a general rise in home prices after a hurricane or natural disaster. One study by the Federal Reserve Bank of Dallas found that house prices can actually increase for a few years after a hurricane strikes. The study shows house prices can rise a maximum of 3-4% for 3 years after a hurricane hits.
Another study of the Houston real estate market after Harvey shows that while some neighborhoods experienced a rise in median home prices a few months after the hurricane, others located on flood plains saw a significant drop. The same report also shows that there was a spike in the rental market which was short-lived and returned to normal activity after some time.
Experts in the Florida real estate market are saying that while the aftermath has been devastating for the market, a “robust” market is on the horizon. Whether this will prove true and follow historic trends is yet to be seen.
Investment Activity Increases
Because certain real estate investors watch the trends of natural disasters in the housing market, many are already scrambling to find good deals on Florida investment property. Real estate agents and firms in Florida have reported being contacted by investors looking to build new property or looking for property whose value will surge in the short term.
Typically, areas like the Florida real estate market that have seen hurricanes, wildfires, and the like soon find they are taken over by house flippers. These real estate investors look for homeowners who don’t want to take care of repairs and just want out. They get good investment deals, perform repairs that are up to code giving the property a new feel and increase in value and flip the property for a good ROI.
A Boom in the Florida Real Estate Market on the Horizon
With the rise in property values, shortage in supply, and increased demand from investors and property buyers, a kind of boom is expected to rise from the rubble of the Florida real estate market.
Related: Florida Real Estate Market Trends of 2019: What to Expect
The Long-Term Effects of Hurricane Michael on the Florida Real Estate Market
The long-term effects are reported to not typically last on the housing market after a natural disaster of any kind. According to Thomas Knapp, associate professor of entrepreneurship and academic director of the Master of Science in Entrepreneurship and Innovation program at USC Marshall School of Business, the housing shortage and rise in prices is short-lived. Demand doesn’t drop either as people know the risks but still choose to live in areas that have been hit by natural disaster.
There could be differences in the demand for specific locations and types of properties. For example, after Hurricane Harvey, the condo market exploded as people were looking for property that was protected from flood areas. Inland markets could also expect to see a rise in popularity as people move away from waterfront properties that haven’t been built to resist natural disaster.
It will still be months before we can look back and reflect on the exact effects of Hurricane Michael on Florida’s housing market. Hopefully, the market will be able to recover as other cities have before it.
If you are looking to buy or sell property in the Florida real estate market during this time, be sure to work with a real estate agent to make sure you are making the right financial moves.
Find a top performing agent in Florida.
Our hearts go out to all of those affected by the tragedy of Hurricane Michael in hopes that they soon find comfort and peace returns to their lives.