Florida’s Real Estate Market Will Take Time To Recover After Hurricane Milton
By CHUCK GREEN
Did Hurricane Milton pour cold water on the value of residential and commercial property in Florida?
The hurricane made landfall near Siesta Key as a Category 3 storm on Oct. 9, striking a stern blow against the state’s Gulf Coast. More than 40 tornadoes formed and much of the state was pelted by the drenching rain. At least 24 people died and over 5,100 properties in Florida were damaged.
Matthew Walsh, assistant director and economist at Moody’s Analytics, told The Mortgage Note that the company’s total damage estimate is between $40 and $70 billion. “That is for all property damage — including personal vehicles — but residential and commercial property compose the vast majority of the cost.”
Walsh said that “the damage was wide-reaching, and except for the panhandle, there was no part of Florida that was unscathed.”
This year, Florida has endured a trifecta of hurricanes. Since 1871, that’s been the case during only five other hurricane seasons.
In recent years, the federal government “has typically stepped in, offering support to make those who suffered losses whole. So, whatever isn’t insured by the private markets will typically be covered by the federal government,“ Walsh noted. “There’s no reason to think that this will be different this time.”
That should help mitigate some of the “darker scenarios” in terms of lost real estate value. However, rebuilding efforts “could take up to a year or more in some of the hardest hit areas on the West Coast,” Walsh explained.
Walsh said the longer-run impact of more frequent damaging storms remains an open question.
“Florida’s soaring homeowners’ insurance premiums are weighing on already low housing affordability. Should this continue, it could deter residents from moving into the state and weigh on home price appreciation,” Walsh said.
Drilling down further on insurance challenges, Sebastian Olascoaga, Ph.D. candidate at MIT in urban economics and policy, said the increasing frequency and severity of natural disasters across the U.S. are starting to impact the insurance market.
“Insurers are raising premiums and becoming more selective about the properties they cover — or even pulling away from entire markets, such as some counties in California,” Olascoaga said.
Homeowners and commercial property owners in high-risk areas might find it increasingly difficult and expensive to obtain insurance, adding a financial burden and potentially deterring investment.
Then there’s the matter of property damage and a decline in values. Olascoaga explained that while Hurricane Milton affected all of Florida, some areas were hit harder than others.
“Areas directly in the hurricane’s path with severe wind damage, flooding, and power outages will experience a more pronounced decline in property values than areas on the periphery,” Olascoaga said. He attributed that to the physical damage, perceived risk of future events, and potential disruption to local economies.
“Homeowners and businesses may find it difficult to sell or refinance properties due to decreased values and increased perceived risk,” Olascoaga said.
How do storms affect how homebuyers and business leaders view a region?
Jeremy Porter, head of climate implications research at First Street Foundation, said their models show that there’s generally a negative impact on property value and commercial viability immediately following an event such as Milton.
In areas with a strong economy, those negative impacts are generally reversed within a few years.
“The interesting thing in Florida is that the market was already showing signs of slowing down with house listing durations increasing and sale-to-list prices slowing decreasing,” Porter said.
Both of those trends indicate an underlying weakening of local demand, which can set up a situation where an event like Milton would serve to amplify that downturn, he observed.
“It’s still to be seen whether that materializes, but the conditions are in place for Milton to have an outsized negative impact on area,” Porter said.
In what he categorized as changing risk perceptions and real estate demand, Olascoaga cited a growing awareness of the risks associated with living in hurricane-prone areas.
“In a recent paper, we showed that access to flood risk information reshapes property search and bidding behaviors,” Olascoaga said.
Buyers given flood risk details were more likely to choose lower-risk properties, reducing bids on higher-risk homes by 57%.
“After Hurricane Milton, similar transparency in Florida or potential buyers searching for properties in Florida and having access to these tools could lower demand for high-risk properties, further affecting their values and the market’s recovery,” Olascoaga noted.
To bounce back, “Florida’s government needs to restore confidence in the real estate market as soon as possible. Transparent and timely information about risks, mitigation efforts, and recovery progress can help.”
There is hope.
Lesley Deutch, managing principal of consulting at John Burns Research & Consulting in Boca Raton, Florida, told The Mortgage Note that on the heels of speaking to several homeowners and land developers in Tampa Bay, “overall, the optimism is strong.”
Short-term, residential sales “may slow as people are getting back to ‘normal’, but the medium to long-term prospects are good. The areas hit by hurricanes have a strong draw – waterfront, sports teams, great neighborhoods, good weather.”
Deutch said she’s hearing that values for older homes prone to flooding; many of those in St. Petersburg, will likely decline, as many have put their home on the market rather than rehabilitate after the storm.
“Because of that, new home construction fared very well and we expect to see a boost in new home sales,” she said.
Deutch also emphasized her belief that migration to places like Tampa might slow, “but that was happening already before the storm. People are seeking affordability and are finding that more inland in places like Lakeland; which is adjacent to Tampa. So the inland migration trend will continue, and it might be stronger than expected due to the hurricane.”
According to October market reports for Lakeland and Tampa, the median sold price for Lakeland was $316,270, while the median sold price in Tampa was $424,741.