Thursday, May 26, 2005

Natural Distasters & Home Prices

Some of the hottest RE markets are those most prone to natural disasters. Think Florida and California. How would a large earthquake or a Hurricane affect housing prices? Presumambly it would reduce supply by physically reducing the number of houses. But the demand curve would also fall for housing in the area.

However, despite last year's strong hurricane season prices in Florida inreased tremendously.

Three Florida metros led the nation in price growth. The strongest price increase was in Bradenton, where the first quarter price of $275,100 rose 45.6 percent from a year earlier. Next was Sarasota, at $326,300, up 36.0 percent from the first quarter of 2004. Third was the West Palm Beach-Boca Raton-Delray Beach area, with a first quarter median price of $362,800, up 35.9 percent in the last year. (National Association of Realtors)

Furthermore, getting Hurricane insurance on homes in Florida is more expensive then in the past. The Hurricane season begins on June 1st, we see will what affect it has on home prices in Florida.


  1. I agree. 1 good sized earthquake in California would shake some sense into the RE markets here. Or a Tsunami (which is possible) would take care of the coastal market.

    If you haven't shopped for earthquake insurance it is incredibly expensive for 10 cents on the dollar coverage.

    When I was a condo owner in So Cal we passed on earthquake coverage. If I recall correctly it was about $500 annually for $50,000 of assets covered and in the case of a loss it would pay 10 cents on the dollar ($5,000).

    I have got to wonder how many Californians take that kind of coverage.

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  3. Welcome to the blog. :-) Thanks for your insight.

  4. As a Floridian, I am amazed that people from other states are unfazed by last year's hurricanes. Though I do have to admit I think it is the best kind of natural disaster in that you get 2-3 days to gather your irreplaceable things and get the hell out (and pray you aren't relocating into the path of a hurricane spawned tornado).

    For the ones who leave, you wait with friends or relatives or in a hotel room, glued to The Weather Channel, and wonder what will be left when you get to go back home. For those who stay, there are sweltering days with no power; long lines for food, gas and ice; looking forward to your weekly shower. Ahh, paradise. LOL.

    State Farm has doubled their home owner's insurance rates, and I heard a rumor that Allstate was no longer writing policies in Florida.

    And then there's the sinkholes, encouraged by water table disturbances caused by construction and development.

    Yet the buyers keep coming...

  5. And people keep rebuilding...

  6. There was a report in the news the other day that All State would not be renewing homeowners insurance for the 2005 hurricane season.

    So now not only do you have higher rates due to cost recovery, you will have higher rates due to less competition.

  7. Would an earthquake create a situation where - displaced people means more people looking for homes means higher rents?

    Just wondering. I live in L.A. and have to look for something as our place was just sold. That'll be two less rental units on the market.