The Impact of Hurricanes on Housing and Economic Activity: A Case Study for Florida

Produced by The NAR Research Division
Commissioned by The Florida Association of REALTORS®
April 2006

Executive Summary

• Hurricanes of at least Category 3 strength making landfall on Florida shores, surprisingly, were quite rare in the latter half of the 20th century. Six hurricanes of such intensity hit the Florida coast in the 50-year time span -- roughly only one per decade.
• However, an unprecedented number of strong hurricanes, including the most powerful hurricane ever measured - Hurricane Wilma, caused unprecedented devastation in 2004 and 2005. Eight hurricanes rated Category 3 or higher blew past Florida in just two years.
• Local economies of the affected regions, at least in Florida, generally rebounded quickly after the storms. The job markets strengthened following the hurricanes, due to reconstruction efforts in the region. Both federal assistance and private insurance payouts surely contributed to the quick rebound.
• Housing activity declined significantly in the months immediately following the hurricanes. But, as with the job market, housing activity returned to pre-storm conditions generally within three or four months after the hurricanes.
• Florida has been the top state in terms of net migration for quite some time. The number of people moving into the Sunshine State far exceeded the number of people moving out. Only one-third of current Florida residents were born in the state. Recent migration patterns of people moving into and out of the hurricane affected regions and all of Florida suggest no lasting longer-term migration impact. The impacted regions continued to draw a high number of new residents, essentially the same as before the hurricanes.
• REALTOR® membership was relatively unaffected by the recent hurricanes. Membership was principally driven by commission revenue opportunities. The doubling of membership in the Florida Association of REALTORS® in the past five years was due to record home sales and a surge in home prices.
• However, the insurance industry, both private and Florida state-run program, has come under great financial strain due to record claims from the 2004 and 2005 hurricanes. Insurance companies have been forced to significantly raise premiums and in some cases have denied coverage in high-risk regions. The state’s insurance of last resort, CITIZENS, has also come under great financial distress and have been forced to raise its insurance premiums significantly.
• The current high cost and limited coverage of property insurance appear to be impacting the housing market. Unlike, past hurricanes, home sales in the recently affected regions and other Florida regions have been lowered significantly with no evident signs of pick-up, even five months (to date) since the 2005 hurricanes hit. Though part of the current shift in the market may be attributed to higher mortgage rates and the dramatic rise in Florida home prices of the past five years, the current sales in Florida appear far lower than can be justified purely by these economic factors.
• Slowing housing activity often precedes an economic slowdown. With Florida as the largest and most consistent generator of jobs in the country, a downfall in Florida will inevitably have national repercussions.
• The highly unusual number hurricanes in 2004 and 2005 was both catastrophic and “unpredictable.” Hurricanes of such strength and frequency could not have been anticipated through normal historical actuarial analysis and, hence, cannot be considered as normal insurable losses. A nationwide federal catastrophic insurance coverage will permit insurance companies to better manage risk and widen insurance availability at reasonable costs. Just as with federal terrorism insurance, coverage on unknowable events allows the private insurance market to continue its presence.
• A federal catastrophic insurance program will not only benefit Floridians, but also residents living near the Mississippi River (flooding), people in Kansas and Oklahoma (tornadoes), West Coast residents from San Diego to Alaska (earthquakes), Texans and Coloradoans (wildfires), and numerous other people in cases of unforeseen and “unpredictable” natural disasters - far more frequent and/or much more destructive than would be expected based on normal historical patterns.

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