How do Natural Disasters Affect the U.S. Property Market?

Harvey’s Fury

According to PBS, 2017 is on track to be a record-setting year for massive natural disasters in the U.S. From severe storms, through floods to the recent Californian fires.

It’s been almost two months since Hurricane Harvey devastated swatches of the U.S. and Caribbean, and, as is often the case with natural disasters, the full effects are yet to be felt.

While U.S. territory Puerto Rico saw the worst damage, many areas of the mainland are still struggling to clean up waterlogged debris from the streets. Harvey caused at least 77 deaths, an estimated $180 billion in damage and impacted the lives of 13 million people. Repairs will take years, while the threat of diseases such as zika and hepatitis remains a top priority.

 


The Wider Economic Impact

The economic aftermath, however, is the dimension of any catastrophe that lingers the longest, harming millions of people who escaped the initial impact of the event.

If key industries are affected, the communities which rely on them can find themselves in dire straits. Port Arthur in Texas, known as Energy City, is responsible for 6.9% of U.S. oil refining and is still reeling from Harvey’s rage, with many residents suffering severe health problems caused by black mould.

Homeowners, meanwhile, even in areas which avoided significant damage, often see thousands wiped off the value of their properties, which can then take years to recover.

And since, according to housing data company RealtyTrac, some 43% of U.S. homes are at high risk or very high risk of at least one category of natural disaster, around 36 million properties, worth a combined total of $6.6 trillion, could someday be hit by a cataclysmic storm or earthquake.

High Risk, High Reward?

California, Texas and Florida, the three coastal sunshine states most popular with foreign buyers, account for nearly half of all overseas property purchases. Great weather, stunning natural beauty and a wealth of employment opportunities are strong pull factors for nearly all demographics.

But they’re also some of the riskiest places to live. With around eight-and-a-half million high-risk homes in California and a further 6.7 million in Florida, retirees, working immigrants and investors alike need to carefully consider the financial implications of future acts of God.

Although property prices in very high-risk areas have fallen by around 6.4% over the past decade, while those in very low-risk areas rose by 9.5%, houses prices in risky areas have rallied in the past few years, bucking the downward trend.

It’s also important to remember that prices in very high-risk areas are often much higher to begin with. Average market values in risky areas range from $170,237 to $191,244 compared with a range of $151,793 to $154,464 in safer zones.

Practical Steps to Take

In the wake of natural disasters, it’s common for nervous buyers to back out of real estate deals. Lenders are then unable to process loans, slowing down or stopping mortgage operations. Most foreign investors, however, pay cash for U.S. property, using cross-border currency solutions like Covercy to save precious time and money.

For those looking to make the wisest investments, it’s well worth investigating the costs of reinforcing walls and foundations, especially in California, where there’s a 68% chance of the Bay Area experiencing another 7.0 magnitude quake within the next 30 years. Although it’s mandatory to fill out a checklist on structural preparedness when selling a property there, earthquake insurance – often prohibitively expensive – is optional, and only around 10% of Californians buy it. In Florida, on the other hand, hurricane insurance is often required by law.

In the decades ahead, it’s likely that the most populous – and popular – U.S. states will retain much of their allure for foreign buyers. The key to investing wisely in property, therefore, is to weigh up all options and prepare for any eventuality.