The After-Effects of Hurricane Katrina
One of the reasons I love real estate, is that besides the basic fundamentals that are powering this housing boom, there are always variables that come into play that can never be anticipated. Hurricane Katrina is a great example of one of these variables.
The basic fundamentals that have been causing home prices to surge continue to be: Low Inventory, High Demand, Weak Dollar (brings in outside investment, particularly from Europe), Tax Benefits of Owning, Continued Weak Confidence in Stock Market, & Historically Low Interest Rate Environment.
Now that Hurricane Katrina has devasted much of the Gulf Coast region surrounding the city of New Orleans, Im hearing estimates upward of 200,000 families that have lost their homes and are now displaced. This is a staggering figure, which will result in Hurricane Katrina being one of the most costliest natural disasters to hit the USA in the past century. While the army corps of engineers works around the clock to rid the area of bacteria infested flood waters, which is no easy task by the way, the cities affected are beginning to realize the complete devastation that has occurred. I ask you:
Where are these 200,000+ people going to live now?
It is no surprise to me that nearby housing markets that have not been affected by this hurricane have experienced short term bursts in their housing prices, as victims frantically put in offers well over market value to solve their short term housing problem. Also look for a spike in the stocks of RV & Mobile Home manufacturers as the federal government will most likely spend their relief funds on these products to help.
Looking forward, you will start to notice an increase in the prices of raw materials that are used to construct homes: Lumber, Concrete, Steel, etc.. You will also notice the homebuilders start to PASS ON these higher costs to the purchaser in the eventual asking price of the new homes. This short-term rise in new homes will price a lot of families out of this market, and force them to look to existing homes instead, resulting in a temporary increase of demand. What does that mean? HIGHER PRICES FOR EXISTING HOMES!
Now, I try to keep my focus on NYC real estate only, but how can I overlook what has happened in the south, and what that might result in for our market. I would think it logical to assume that some wealthier homeowners that have lost their properties, will be looking to move into a different region of the states, after experiencing the pain and desperation of this tragedy. If only 1% of the total amount of those who lost their homes, moves up into the Tri-State area, then that would add to the already high demand that we have seen thus far.
We all know that the current housing market in NYC is very very tight, and that demand is very very strong, so this would only add to the continuation of rising home prices in our area.
While my thoughts here are future oriented and can be looked at as a prediction, the actual affect is still yet to be seen. At the very least, keep your eyes open to what the outcome of this tragedy is in terms of housing, so that we can learn from what has happened for future investment decisions.
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