Katrina and the Impact on the Real Estate Market

The past few days, people have been asking me about my thoughts on Hurricane Katrina’s impact on the housing market. I’ve mentioned everything from energy prices (we lost many rigs) climbing, insurance rates jumping, and costs of building supplies climbing due to huge new demand.

A new article that came out today explains the impact on housing markets quite well. It compares Katrina to major hurricanes in the past, and is a must read for those interested in the impact of a major disaster on real estate and on a housing “bubble” as well. Here’s a preview:

There are plenty of reasons a hurricane of Katrina’s impact — a once-in-a-generation occurrence — can hurt real estate prices nationwide.

1. Interest rates could climb as the government borrows hundreds of billions to clean up after Katrina.

2. Energy price increases from the Katrina related supply shock may drag the economy into recession.

3. Mortgage defaults from homeowners with homes underwater (literally and figuratively) could spook the mortgage bond market, cutting off new capital to homebuyers.

4. Rising insurance premiums resulting from hurricane losses could increase the cost of owning a home thereby lowering the value of a home.

5. Fare increases from airline fuel costs could increase costs of visiting vacation property.

6. Excess demand from massive construction projects in Katrina ravaged areas could lead to building materials and other commodity price increases as well as labor shortages creating inflationary pressures on the economy

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