How Hurricane Sandy’s Aftermath Will Affect The Housing Market’s Recovery | Waccabuc Realtor

Hurricane Sandy pummeled the East Coast on Monday, leaving a trail of devastating destruction in its wake. Damages could run as high as $50 billion, according to Eqecat, and hundreds of thousands of homeowners are expected to file claims for flood and wind damage, according to the Consumer Federation of America. Roughly $88 billion worth of homes across eight states were put at risk by the storm’s surge, according to Corelogic.

Hurricane Sandy’s immediate impact on real estate in the hardest hit Northeastern neighborhoods is already painfully evident, from New Jersey shore houses completely swept away by the sea to entire neighborhoods like Queens’ Breezy Point tragically leveled to the ground. But this latest natural disaster won’t just affect certain ZIP codes, it will weigh on America’s housing market as a whole.

In many parts of the country housing has welcomed a nascent recovery. Nationally, home sales have been notably higher this year as compared to last. In September, existing home sales were up 11% year-over-year and pending sales up 14.5%, according to the National Association of Realtors. Prices have risen too, with the national median sales price $183,900, or about 11% higher than September of 2011.  Inventory has fallen drastically in many parts of the country, fueling the uptick in prices. The rising numbers have helped housing become a bright spot in recent economic reports, with analysts projecting that residential investment will positively contribute to gross domestic product this year for the first time since 2005.

Now that rosy recovery will dampen. “This will certainly create a negative in the short term,” says Lawrence Yun, chief economist of the National Association of Realtors. “The bottom line is we clearly anticipate a slowdown, but it will be temporary.”

Along the East Coast, expect home sales to trend downward in coming months, as sellers take their damaged digs off the market and buyers hold off on purchases. Pending sales will be delayed or in some cases collapse altogether as lenders insist upon new appraisals in areas battered by Sandy.  Yun expects the regional drop in activity to log a “notable, measurable impact” large enough to pull the national sales statistics down for November onward. Home sales typically begin to slow due to seasonality at this time of the year; the storm’s lingering effects will ensure that slowdown manifests more dramatically.

Even so, that short term pain may actually evolve into a market boost four-to-six months from now. “With past natural disasters, home sales pause but what generally happens is in later months, as insurance money begins to flow in, the housing market gets elevated to higher levels than before the storm,” explains Yun.

Interestingly, data tied to comparable natural disasters suggest that home prices tend to be inversely affected.  With inventory levels reduced, demand tends to outweigh the supply, causing prices to inch up. “Home prices tend to rise after hurricanes and other natural disasters because some homes are unfortunately lost and new construction is delayed so housing stock isn’t growing as fast as the population,” says Jed Kolko, chief economist of

However, more drastic storms in areas more commonly associated with, say, flooding — like Hurricane Katrina in New Orleans — can have the opposite effect, pushing prices down in the long term as residents relocate to new areas altogether.

Hurricane Sandy will affect residential construction, which has modestly rebounded this year, in two ways. Remodeling activity will jump, as homeowners who sustained damage to their properties, particularly primary residences, hire contractors to make immediate fixes. “It’s bad news for homeowners, but it’s certainly an opportunity for workers who have survived a very down housing market to get back to work,” says Robert Denk, an assistant vice president of economics for the National Association of Home Builders. He notes that this dynamic played out after Hurricane Irene as well.

In the short-term the storm will stifle new housing starts. This will in part be due to seasonality, since new homebuilding tends to pause in the winter months in the Northeast, and in part be due to the fact that many of decimated coastal properties in places like the Jersey Shore tend to be vacation homes and as such, will not likely be considered immediate priorities in terms of repair. New home starts, like sales, will likely rebound in early spring to levels slightly higher than before the storm as owners start to finally rebuild those properties.

A subsection of the housing market now riddled with post-Sandy questions is distressed real estate. On Wednesday RealtyTrac reported that nearly 25,000 distressed properties valued at an estimated $7 billion sit in counties declared disaster areas. Daren Blomquist, a vice president at RealtyTrac, says the number is actually higher, though the California-based foreclosure site has yet to finalize and upwardly revised count.

“I think there is potential for people in the foreclosure process to now have less incentive to fight foreclosure on a home if it has been damaged,” says Blomquist.  In other words, some distressed homeowners may simply walk away from their preforeclosures altogether rather than try and work out a short sale or other such deal. With bank-owned homes, the question that arises is whether lenders will choose to pour money into renovations for damaged properties, especially since those REOs already represent non-performing assets.

New Jersey and New York have two of the slowest judicial foreclosure processes in the country. New Jersey has experienced 100%-plus increases in foreclosure activity this year, according to RealtyTrac, as lenders finally began processing foreclosures stalled by 2010′s robo-signing scandal. New York state has seen similar activity increases this year. RealtyTrac expects Sandy’s impact will cause a temporary pullback in the number of foreclosure documents filed in both of these states.

“This storm could slow down the foreclosure process and therefore the housing recovery,” warns Blomquist. “It will certainly slow down the pace at which the market will absorb these properties.”

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