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July 12, 2022

Does Hurricane Season Affect Coastal Housing Markets?

As a subtropical state, Florida is warm year-round, which makes it a great place for tourists who are looking to escape cooler climates. But while the tropical climate and coastal regions of this state are a big draw for vacationers and residents alike, it also puts the state at high risk of hurricanes. While inland Florida residents aren’t as likely to face the destruction caused by hurricanes and tropical storms, the coastal regions of Florida are at high risk of hurricane damage each season.


The official Florida hurricane season runs from June 1 to November 30, just as it is in the rest of the nation. The peak months for hurricane season typically run from August through October, with most storm activity historically occurring during these months. According to the National Oceanic and Atmospheric Administration (NOAA), 96% of the major hurricane days occur from August to October. However, mid-September is generally more active in regard to tropical storms.


Every season seems to bring record-setting storms that wreak havoc from Texas to New England.  Climate change may be creating storms that are more powerful and dangerous every year, and in past generations, massive hurricanes may not have been as frequent as they are today.  Still, back in the days before radar and satellite meteorology, hurricanes generated more fear and killed more people than they do today.


Do Hurricanes Lower Home Values in Coastal Cities?

In light of the devastation that hurricanes like Dorian, Florence, Michael and Harvey, cause to the Gulf and Atlantic coasts, one would expect that property values in the “alleys” that hurricanes carve where they come ashore would reflect the costly damage that they cause. Most damage from hurricanes comes not from the wind, but from flooding caused by ocean surges and rainfall. Though storms may travel hundreds of miles inland, most of the damage they cause occurs within a few miles of the coast.


Causing about $125 billion in damage, Hurricane Harvey in 2017, was the second-most costly hurricane to hit the U.S. mainland since 1900. In 2005, Hurricane Katrina caused more damage – around $160 billion. The two storms landed only about 300 miles apart and damaged some of the same Gulf Coast towns. After creating such costly devastation, why don’t hurricanes lower home values in coastal areas?


The answer is surprising. Economists at the Federal Reserve Bank of Dallas answered that question in a 2010 study. Their dataset of coastal areas covered a more extended period (1988 to 2005), included more territory (99 statistical areas across 19 coastal states) and more hurricane strikes (13 hurricanes) than previous studies.


Do Hurricanes Raise Home Prices?

They found that the typical hurricane strike raises real house prices for some years, with a maximum effect of between 3% to 4% three years after the event. During the first two quarters following a major hurricane, they found that home prices and sales experience a temporary dip as homes are rebuilt, followed by a positive correction. Also during that period, you’ll see the supply of homes is still recovering, but demand returned quickly. As new and restored properties increase, local inventories, demand, and supply come into balance, and prices stabilize. Local incomes suffer immediately after the hurricane and may lower local incomes for several years as the local economy is restored.


Why Investment Property Owners Continue to Return to Coastal Cities


Hurricanes hit some areas of the Atlantic and Gulf coasts on a regular, even annual basis. Why do vacationers and vacation homeowners keep returning to the same places?

Demand for local homes does not diminish even if hurricanes will probably strike again. The sun, beaches, and ambiance of the destination never leave. And, after a couple of vacation seasons, the debris is cleared away, restaurants and rentals are back in business, and demand rises. Homeowners and flood insurance cover losses.


Perhaps people don’t fear hurricanes as much they did generations ago. Very few die in hurricanes anymore thanks to advances in technology and preparedness checklists at people’s disposal. Even in areas like the northern stretches of the Outer Banks, where thousands rely on the two-lane Highway 158 to return to the mainland, hurricane alerts provide enough notice. Many people on the East Coast regard the threat from hurricanes like West Coasters think of earthquakes. Neither is a reason to lower property values.


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Source: Steve Cook

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