HOUSTON – (By Dale King, Realty News Report) –The fury of Mother Nature can wreak havoc on a neighborhood, city or state. Floods, wildfires, hurricanes, volcanoes and earthquakes can leave significant destruction in their wake as many communities across the United States have witnessed first-hand.
The annual Natural Hazard Report by CoreLogic notes that serious damage to and obliteration of homes and commercial buildings, and displacement of families and businesses not only has an immediate impact, but a longer and ongoing trail of financial impact on property and mortgage markets.
The finding that’s perhaps most noteworthy to residents of southeast Texas is the conclusion that after 2017’s trio of hurricanes — Harvey, Irma and Maria — serious mortgage delinquencies tripled in the Houston and Cape Coral, Florida metropolitan areas, and quadrupled in San Juan, Puerto Rico.
The CoreLogic report considers the serious delinquency rate as the percentage of loans 90-days-or-more delinquent or in foreclosure proceedings.
Hurricane Harvey slammed the Houston area in late August 2017, dumping more than 50 inches of rain and causing extensive, destructive flooding. It forced thousands to evacuate and pressed local officials into providing shelter in whatever usable vacant buildings could handle the deluge of fleeing humanity.
The report says that “severe events can not only damage a family’s largest asset — their home — but disrupt a family’s regular flow of income if their ability to work is affected.”
“Many factors contribute to a family’s ability to quickly recover from a natural disaster, but data supports that natural disasters lead to an increase in mortgage delinquencies which can lead to default and potentially to foreclosure.”
“While payment forbearance programs provided by the Federal Housing Administration, Department of Veterans Affairs, lenders and secondary market investors can lessen the financial stress following a natural disaster, local delinquency rates still rise,” the report notes. “The analysis of loan performance in the aftermath of a disaster indicates that it can take 12 months or more before the serious delinquency rate returns to its pre-disaster level.”
The substantial loss of housing stock also affects the cost of shelter in affected neighborhoods, especially those that already have a severe shortage of homes.
Bill Baldwin, broker/owner of Boulevard Realty in Houston, offered an analytical look back at the impact Harvey had on the Bayou City as it bulled its way through and slowly receded, leaving a trail of destruction.
“Natural disasters tend to bring into focus broader issues of affordability and inequity in our housing market,” Baldwin noted. “Like the broader impact of natural disasters, housing insecurity doesn’t affect everyone in the same way.”
“There are structural issues that result in areas like West University and Bellaire, both situated in the floodplain, not feeling such a severe economic impact from flooding like a Kashmere Gardens or even Westbury may. This could be due to the amount of local funding that goes toward drainage or simply the jobs and wages tied to households in those areas. So, I think the increased mortgage delinquency and foreclosure rates are more a symptom of the need to create more resilient communities with greater equity in general.”
The CoreLogic report also explains the federal and state policy changes taken as a result of severe natural disasters in the past decade or so as the United States grapples with more frequent and more severe catastrophes. Those affecting flooding occurrences include:
The National Flood Insurance Program (NFIP) underwent reforms in 2012 and 2014.
In 2018, the United States implemented the most significant changes to federal natural disaster mitigation and recovery policy since Hurricane Katrina.
Leading into the 2020s, FEMA’s approach to mapping and assessing flood risk may change with the advent of the NFIP’s Risk Rating 2.0 program expected in 2021, which aims to incorporate a structure-specific flood risk assessment into insurance rates.
Baldwin offered additional observations from the real estate perspective.
“I don’t think the professional community is adequately educated on flood risk, so they don’t do a good job of educating homebuyers. Flood risk is financial risk. There is a potential hidden cost to buying in a flood-prone area, and it is unethical to let someone buy a home without a full understanding of that risk.”
“I think the revised Seller’s Disclosure form is a step in the right direction, but we must do more to ensure the real estate industry is not exacerbating issues of socioeconomic disparity.”
The report also takes an in-depth look at disasters in 2019. “While it was not the most catastrophic year to-date, it demonstrated a continuing trend of higher losses,” said Tom Larsen, principal, Industry Solutions at CoreLogic. “Affected communities experience an ensuing ripple effect from natural disasters, which is why continuously improving the data and analytics surrounding these catastrophes is so important in making our society more resilient. Understanding the past is critical to contending with the risk of the future.”
2019 marks the seventh year in the last decade in which 10 or more weather and climate disasters exceeding $1 billion have occurred.
Two disastrous events near Texas and America’s southeast coast were spotlighted in the report.
The Dallas tornado, an EF3, impacted nearly 10,000 structures, disrupting the business and livelihoods of countless residents and causing more than 150,000 customers to lose power. This resulted in what the Insurance Council of Texas “conservatively” estimated at $2 billion in insured losses.
The Inter-American Development Bank estimates the total cost of Hurricane Dorian on the Bahamas at $3.4 billion. This, in conjunction with the $750 million from the prior hurricane seasons, means that in the past five years, a total of $4.25 billion in losses were incurred via hurricanes in the Bahamas—more than one-third of the $12 billion gross domestic product of the region.