Natural disasters and calamities have a huge impact on the housing market, and most of them are primarily negative. When a place is affected by such unforeseen events, the housing market gets badly affected by wildfires, rising water levels, hurricanes, tsunamis, landslides, or earthquakes. The number of natural disasters is also on the rise due to severe climate change. According to international ADB research and data, registered natural disasters have increased three-fold over the past decade. The numbers will keep increasing since there are hardly any measures to control pollution and climate change.
Large portions of the USA are estimated to get affected by these natural events, and the severity and frequency are set to increase. This means that housing prices in these areas will keep getting affected, and as a real estate business owner, you need to be prepared for it. According to a Realtor.com survey, 78% of homeowners and buyers consider natural disasters when deciding on moving or purchasing a house. So, if you think your business will not get affected, you need to reassess.
From home construction issues to supply chain issues and home inventory getting affected, there is an endless number of impacts of such incidents. This also includes a steep rise in home prices due to a lack of inventory but lower demand from outside customers. There are many more such facts and statistics that you should know about to learn how these natural events are affecting this industry. In this article, we do a deep dive into this issue; read on to find out more details.
Natural disasters are affecting existing homeowners
Natural disasters many a time lead to the houses in these areas getting affected, from losing their furniture to the whole houses being crushed; the effects can be really harsh. When some houses get affected, the inventory in these areas becomes low. Construction supply materials also take time to arrive due to disruption in supply chains, and the prices of non-affected houses in the area go up. But this does not mean that the demand necessarily increases.
A Realtor.com survey has found more than 34% of disaster-affected area homeowners have thought about selling their existing houses and moving to a new location. The problems arise when housing inventory is already low in an area, the population density is high, and the number of disaster-affected people is also high. This leads to a steep rise in demand and price of existing houses.
How natural disasters affect new homebuyers
Most homeowners are constantly worried about natural disasters, leading to many staying away from buying properties in these areas, leaving the real estate sector affected. Realtor.com survey says more than 75% of recent home buyers and 72% of millennial home buyers are highly concerned about the effects of natural disasters. They always factor this in before buying a property, and it is now one of the major influencers in their decisions.
Research has found that the homeownership rates go down by at least 3 - 4 % in such natural disaster-affected areas. People were either forced to move out when their homes were destroyed, or some people anticipated the future impacts and moved out beforehand.
Factors that determine the impact of the natural disaster on home prices
If you manage real estate or are a landlord and your property portfolio is spread under probable disaster zones, then you should know about these factors which affect home prices.
The level of damage to the property - If you take enough precautions to damage-proof the houses, then the effects will be lesser, and your housing prices will not go down drastically.
Demand in the location - If the general demand in the affected area is already very high and the population density is also high, then the prices are unlikely to drop.
If the effects of the disaster are very widespread, like the whole town/city is affected, then as a ripple effect, the entire city’s housing prices are likely to go down.
Examples of home values getting affected by natural disasters
Below are some real-life examples of home prices being affected by natural disasters. Check them out for a better understanding of the scenario.
Hurricane Harvey, 2017, Houston
After the hurricane, many homes could not be occupied due to flood damage, which led to a shortage in inventory. But Houston was still a place that had a high demand for properties and is quite densely populated; hence the home values rose by 37.2% in 2018, a steep rise even after the hurricane disaster.
Paradise Wildfires, 2018, California
Paradise is a small town in California and it was very badly affected by the wildfires, which led to housing sales going down by more than 40 - 50%. More than 95% of the town was affected; hence the people who could afford to buy new houses moved permanently to avoid such situations in the future.
Rising Sea Levels, Ongoing, All of Florida’s Coastal Regions
There are more than 7 American cities that stand completely going underwater in a few years' time. Even big cities like New Orleans, Miami, and Atlantic City are sinking, and their sea levels are rising drastically. Unlike other natural disasters, this is a disaster that is advancing slowly and more homebuyers are making conscious decisions to stay clear of these places when investing in a new home.
As real estate businesses or property owners, you can first make your properties damage-proof and get every bit of the property insured to avoid greater losses. In case of such incidents, you will also not have to pay huge amounts of money from your own pockets.
Planning Your Real Estate Strategy for the Future
Natural disasters are not reducing any time soon, and they will keep affecting our lives for a long time now. So it is better to start planning your strategy and leadership in a way that you can either work with these problems or work around them. We can help you with this level of planning in your real estate business and help you get ahead of the curve.
Talk to us to know how we can help you help your business.