Even as Hurricane Ian’s 155-mile-per-hour winds were leveling southwestern Florida, real estate agent Rick Pitts was selling the dream of waterfront living.
As Ian made landfall, Pitts, the owner of Sellstate Excelsior Realty in Cape Coral, told his Twitter followers to check out a $60,000 canal lot on the north side of town. The tweet, which Pitts said was autogenerated, provided the perfect setup for punchlines such as “gives new meaning to the term underwater mortgage” and “must own a boat.”
While people mocked the timing of Pitts’ post, research from the Federal Reserve Bank of Dallas, academics and industry data providers spoils the gag. These studies show that real estate in hurricane-affected regions has historically appreciated above the national average following a storm.
“I’ve got people whose houses didn’t get damaged saying they’re not going to sell now,” said Pitts. “What I tell them is that they’ve got no competition.”
The data support Pitts.
A study by Veros Real Estate Solutions, a provider of residential property valuations to the real estate industry, showed that property prices jumped by an average of 7% above the national average in five metropolitan areas hit by major storms during the subsequent 12 months.
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In what might be cold comfort right now for Floridians digging themselves out of the devastating storm, a 2010 Federal Reserve Bank of Dallas analysis found a similar effect. That research also concluded that the gains endured for years afterward.
“Our results show that the typical hurricane strike raise real house prices for a number of years, with a maximum effect of between 3 to 4% three years after occurrence,” wrote authors Anthony Murphy of the Dallas Fed and Eric Strobl, who was a professor at Ecole Polytechnique at the time.
Then there’s an April 2022 breakdown co-authored by University of California, San Diego economist Joshua Graff Zivin. That paper focused on the Florida housing market using data from 2000 to 2016. Graff Zivin and his colleagues determined that “hurricanes cause a temporary increase in home prices.”
The team’s research also busted another common misconception.
While the income of new and remaining residents proved to be higher than the pre-hurricane baselines, Graff Zivin and his team wrote that they didn’t “find any major changes to the racial, ethnic, or gender profiles of buyers, suggesting that socio-demographic characteristics of neighborhoods are quite stable in the face of these housing market shocks.”
Understanding why housing in hurricane-hit areas appreciates faster than usual is a straightforward case of supply and demand.
“It wasn’t obvious what effect we would find,” said Anthony Murphy of the Dallas Fed. “What we found is that it’s much more of a shock to supply than to demand.”
Simply put, many storm victims won’t move. They’re not willing to break the personal and professional ties that bond them to the region even if that means having to hunt for homes when few are both for sale and habitable.
“I’m sure there are some people who are saying they’re going to move, but at the same time there are a lot of people who aren’t going to move and there just aren’t going to be places available right now,” said Eric Fox, the chief economist at Veros Real Estate Solutions.
Still, there’s reason to think Hurricane Ian might be different.
Just this year, six property insurance companies in the state have been deemed insolvent. To cover claims made by customers of these failed insurers, the non-profit Florida Insurance Guaranty Association (FIGA) pays out of its pocket.
FIGA, however, is funded by passing on its costs to Floridians. Currently, the association is levying two so-called assessments that tack 2% onto all Florida homeowners’ policies.
Add it all up, and the average cost of insuring a home in the Sunshine State has jumped to $4,231 per year, according to a June 2022 report by the Insurance Information Institute. That’s almost three times the national average, according to Triple-I, and also about three times more than the 2019 per capita property tax in the state, according to figures compiled by the Lincoln Institute of Land Policy.
Still, Veros’ Fox doesn’t believe that will change much. In fact, Veros is predicting hard-hit Lee County to boom over the next year.
“I don’t see any reason to suspect this time is going to be different,” said Fox. “Before Ian, we expected Lee County housing prices to gain 2.8% over the next twelve months. If you add that 5-6% hurricane premium, Fort Myers and Lee County could be looking at 9-10% appreciation over that time. I’d be surprised if it isn’t close to that.”
Rick Pitts says there’s something else naysayers should consider.
“People want to move from states that aren’t run as well as ours, and they have the money to do it,” he said. “Hurricanes are no joke, but in California you don’t get an earthquake warning.”