Published October 31, 2019

Nature’s Unpredictability: How It Affects the Real Estate Market

Staff Writer

Content Specialist at Effective Agents

Natural disasters seem to happen almost constantly across the country. For example, there are currently wildfires burning in California. In 2019 so far, around 160,000 acres have burned in the state, and the worst may not be over yet. Typically, the most destructive California wildfires start in the last four months of the year. We’re also in the midst of hurricane season. The 2019 Atlantic hurricane season is the fourth year in a row with above-average activity. Natural disasters, including not only wildfires and hurricanes but also events like floods and winter storms can impact every area of our lives, and real estate is no exception. So, what are some of the specific ways we see impacts on real estate in the wake of natural disasters?

Losses Mitigated By Insurance

The increasing natural disaster events paired with growing populations in many of the areas most affected by these events mean serious financial losses. For example, there were nearly $1.49 billion in commercial mortgages alone that were at risk because of damage from Hurricane Florence in 2018. Even so, according to Morningstar Credit Ratings, there wasn’t a significant increase in loan defaults because of the damage. Much of the reason for this is because property owners had adequate insurance. While many property owners have focused on making sure they have appropriate insurance to protect against damage from natural disasters, the result has been increasing insurance prices. These rising prices could lead people to leave areas like New York City or South Florida, where weather’s impacts are often significant.

Delays and Disruptions

According to research compiled by Realtor.com on the impact of natural disasters in 2017 on the housing market, most areas saw a delay or disruption in home sales. The impact was estimated to be anywhere from 18 to 32% of home sales delayed or disrupted in the month a disaster occurred. Specifically, there were around 900 lost home sales because of the Northern California wildfires, and Hurricane Irma led to around 9,700 lost sales. The rental market fares better during natural disasters. In the short-term, there is often a higher demand for rental properties following a natural disaster, and rent prices tend to go up, although that doesn’t last following the event. The general trajectory following a disaster is most often that asking prices and property values dip, then surge upward and finally in the long-term settle in the normal territory.

What If You’re a Buyer?

If you’re a buyer, going into an area following a natural disaster can actually be a smart decision. For example, most sellers are going to offer deals on properties following an event, particularly if they want the buyer to handle repairs. Not only buyers, but investors will often come into a marketplace where a natural disaster has hit. If you are a buyer, it’s important that you understand the risk of natural disasters in any given area where you’re thinking about buying. You should do independent research about the risk of specific natural disasters in an area, and also talk to your Realtor about it. If you do buy in an area that’s at risk for particular natural disasters, be proactive to ensure you adequately protect yourself with the necessary insurance. Take the opportunity to connect with a marketing-leading Realtor today with the help of EffectiveAgents®.

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