Hurricane season is here – how should investors prepare?

June brings summer weather and home buyers en masse … and hurricanes too. While this season is unlikely to be as intense as last year, which saw a record-breaking 30 storms – 12 of which hit land in the United States mainland – weather experts still expect an active season.

How at risk are you and your property?

Hurricanes can devastate communities, damage the local economy, and displace and steal many people’s lives. Storms can also have a heavy impact on real estate markets.

When investing in a coastal market, it is important to prepare.

How many houses are at risk?

Real estate data company CoreLogic assessed the risk Americans are facing this year in its annual hurricane report.

According to the report, 31 million single-family homes are moderately to severely at risk from hurricane winds and one million apartment buildings. In addition, and perhaps most dangerous, eight million households are threatened by coastal storm surges.

While home insurance typically covers hurricane wind damage, flood insurance is usually sold separately. Those in federally established floodplains with US government backed mortgages must have flood insurance. As with other lenders, it is up to them whether or not to require flood insurance from a homeowner. If wind or storm surges threaten your property, check your insurance policy to make sure you are covered.

CoreLogic estimates that up to 70% of damage caused by flooding is uninsured. If the numbers collapse, storm surge damage caused by a Category 5 hurricane alone could cost billions of dollars, and even more when you factor in wind damage and debris.

Almost three years ago, Hurricane Florence – Category 4 on land incursion – hit the Carolinas. The storm killed 53 people and caused billions in damage. By September 2020, two years after the storm landed, the North Carolina government and FEMA had already spent more than $ 2 billion on reconstruction assistance and provided free short-term housing to 656 displaced households.

Based on data from the National Oceanic and Atmospheric Administration (NOAA), the cost of damage from weather events, adjusted for inflation, has increased by 70-90% every decade.

Hurricanes are expensive and cause great suffering to the communities that devastate them. But what happens to the local real estate market when they strike?


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Mortgage defaults increase after storms

The majority of Americans don’t have much savings – especially Millennials and Generation Z. When a hurricane hits, the economic stresses on low- to middle-income families can be as devastating as the storm itself.

One of the first problems these communities face is the lack of insurance. Private mortgage insurance can be costly and is generally required for most homeowners with less than 20% equity in their homes, but flood insurance is separate and adds up. Low-income communities tend not to have broad coverage, which can create a lot of problems in a storm.

A roof in Lake Charles, Louisiana – a city that was hit by Hurricane Delta and Laura last year – costs about $ 8,000 to replace. The median household income in Lake Charles is about $ 43,000 per year. If they don’t get help or insurance money, the roof renewal would require 20% of their annual income. And that’s just that average Family. Lower-income families are in an even worse position.

The various problems homeowners face when storms hit land naturally lead to an increase in mortgage defaults. When Hurricane Laura hit Lake Charles, the mortgage default rate was already quite high: 9.8% in August 2020. By September the rate had risen to 16.1%.

Similar jumps have been seen elsewhere, such as after Hurricane Michael in Panama City, Florida. The mortgage default rate there rose from 3.9% in September 2018 to 11.3% in November.

Hurricane Harvey caused significant damage to the Houston, Texas metro in 2017. He also increased defaults from 6.2% to 10.9%.

What happens to the real estate market after hurricanes?

The devastation caused by hurricanes continues to affect the real estate market in the months after landing through reduced inventory levels.

In the two months following Hurricane Michael, housing supply in Panama City fell 13%. Nearly a quarter of Houston’s real estate portfolio lost value after Hurricane Harvey, and Hurricane Florence caused supply in Wilmington, North Carolina to decline 26%.

Hurricanes create significant problems for everyone involved in real estate – be it homeowners, real estate agents losing their listings, investors needing to fix property, banks losing their mortgage payments, or developers losing valuable time on their projects.

How should investors stay prepared?

Hurricanes will always be a problem, but in the past few decades they have become more problematic as their size, strength, and frequency increase with sea levels and global temperatures. Going forward, the best way to fight these storms is through data, architecture, and the support of those in our local communities who need additional help.

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