THE BIG PICTURE
NATURAL DISASTERS
the natural beauty inherent to locations sus- ceptible to wildfires would overwhelm buy- er objections about fire risk. The hypothesis held that natural beauty essentially would negate any downward impact on home values and even push those values upward. However, according to a study conducted by economists at the College of the Holy Cross in August 2015, public perceptions of risk of fire have changed in a measurable way as fire suppression techniques and forest management over the past century have actually led to more incidents of damaging fires across the country. This issue has been compounded by population growth in particularly at-risk areas. When evaluating the likelihood of long-term damage to the value of a piece of real estate that was in the vicinity of a wildfire but not burned, the duration of the depression of value directly relates to the number of fires in an area and whether those fires were visible from the property. Housing prices of homes in areas that experienced one fire fell 9.7 percent after that first fire but did even- tually recover, while those that experi- enced another fire lost an additional 22.7 percent and continued to be depressed. Homes that were not close to urban centers and were near fires or located in high-risk areas tended to struggle to regain those losses. However, homes that were high-risk but also near urban centers still sold at a 17.5 percent premium in the immediate wake of the fire, but only as long as the specific home being sold had not been damaged. Before the fire, those homes sold at about 4.4 percent more than they did immediately thereafter, but still sold for more than comparable homes in slightly less desirable (read: beautiful) and also less risky areas. HURRICANES AND FLOODS CAN PUSH HOME PRICES UPWARD Fires probably take the cake for long- term property value depression, but
when it comes to spectacular devasta- tion, hurricanes and floods, along with their associated high winds, top the list. Fortunately for homeowners hit by these disasters, the long-term effects of this type of disaster include elevated home prices because a great deal of federal and state money tends to pour into these affected areas and the majority of homeowners rebuild, often with improvements, rather than move away permanently. This trend is so established that shortly after Super Storm Sandy, Na- tional Association of Realtors (NAR) chief economist Lawrence Yun felt safe saying, “The bottom line is we clear- ly anticipate a slowdown, but it will be temporary.” He added, “With past natural disasters [of this nature], home sales pause but…in later months, as insurance money begins to flow in, the housing market gets elevated to higher levels than before the storm.” Jed Kolko, former chief economist and vice president of analytics at Trulia, agreed. “Home prices tend to rise after hurricanes,” he said. This tends to hold true in places where hurricanes are the main source of damage rather than flooding, although hurricane-related flooding may have the same effect. Public perception plays a huge role in the magnitude of the effect of water disasters on a housing market, however When Hurricane Katrina devastated New Orleans, so many residents left per- manently and there was such a negative perception about the city’s response to the emergency that prices were pushed down both short- and long-term. EARTHQUAKES: HARD TO MEASURE The long-term effects of earthquakes on home values are difficult to measure, in large part because so many areas of the country that are particularly sus- ceptible to earthquakes also offer good weather, strong economies, and plenty
of natural beauty. Again, public percep- tion plays a big role, since if the public believes the earthquake is a natural disaster, there will be far less negative effect on home values even in the short term than if it is believed to be man- made, such as those tremors allegedly caused by fracking. For example, the 1989 Loma Prieta earthquake in northern California killed 63 people and did roughly $6 billion worth of damage. However, homes in the area that were damaged beyond repair did not, for the most part, sustain highly visible damage. As a result, once cleanup and demolition was complete, the disas- ter began to fade from people’s minds and both buyers and sellers got back to the business at hand and started listing, selling, and buying homes for increas- ingly expensive sales prices once again. On the other hand, if public percep- tion credits human actions, such as fracking, for an earthquake, a housing market can end up in trouble. With widespread uncertainty about the safety and wisdom of this mining technique that forces liquid under high pressures into subterranean rocks in order to extract oil or gas, areas that are expe- riencing earthquakes that appear to be linked to the practice are more likely to experience extended slumps in home value while the public reaches a deci- sion about the source of the trouble. A FOOTNOTE ON TORNADOES Interestingly, research published in 2011 by the American Meteorological Society on the impact of tornadoes on property values and communities indicate tornadoes and tornado damage
Buyers will pay top dollar for this type of natural beauty, but sometimes natural disasters drive the cost too high.
WhenWeather Takes Aimat Your Equity 4 TYPES OF NATURAL DISASTER AND HOW THEY HURT YOUR HOME VALUES.
by Carole VanSickle Ellis
However, for some types of natural disaster, that short-term chill ends up leading to longer-term price gains and even serious heat. Whether a disaster will hurt home prices or heat them up depends on the event and how the com- munity responds. FOREST FIRES LEAVE LONG- TERM SCARS When 6,181 acres of Fourmile Can- yon forest burned in the fall of 2010, the fire consumed 169 homes and caused $217 million in property damage in the mountains west of Boulder, Colorado. That fire resulted in huge uninsured losses, burned more homes than any previous Colorado wildfire, and gar- nered a great deal of media attention because it came within five miles of downtown Boulder. Prior to studies conducted in the wake of that fire, conventional wisdom had held that
short term. In 2012, CoreLogic termed this type of slowdown a “chill,” saying, “The effects that natural disasters can have on housing markets are certainly localized, but in those areas they can have a chilling and immediate influence on home buyer confidence.” The reasons for this are simple and largely logistical. Bad weather simply slows things down, much like a hard frost. For example: • Mortgage applications are de- layed indefinitely while damage is assessed and mortgage origination sites, like banks, reopen • Closings are delayed indefinitely while damages are assessed • People pull their homes off the mar- ket to do repairs • People wait to list their homes to see what will happen to home values • Buyers are temporarily less interest- ed in buying in the affected area
hen Hurricane Sandy slammed into the East Coast in 2012, the
super storm left billions of dollars in damage behind. As the nation began funneling help and resources toward the country’s northeastern shores, homeowners began picking through the wreckage to see what remained and start- ed thinking about whether to rebuild or pack up the remnants and leave. In the wake of any natural disaster, it often looks and feels as if the recovery will never be complete. It may seem as if the housing market and local home values will never recover either. We examined four types of major natural disasters to determine the truth about how they each affect home values.
> Continued on :: PG 112
SHORT TERM SLOW-DOWNS ARE NEARLYUNIVERSAL In all cases, major natural disasters slow the housing market down in the
Carole VanSickle Ellis is the editor of Think Realty Magazine. She can be reached at cellis@thinkrealty.com
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