In 2023 alone, the United States experienced 28 natural disasters causing over $1 billion in property damage, including the extensive destruction from Hurricane Helene in the Southeast and widespread flooding from Hurricane Milton in Florida. While natural disasters are unpredictable, certain regions are consistently higher-risk than others.
By understanding how these events impact the housing market, investors can identify opportunities to flip properties and turn challenges into profit.
Short-Term Effects on the Housing Market
Following a natural disaster, housing prices may fall. In 2017, after Hurricane Irma caused major damage across the Florida Keys and South Florida area, home sales declined by up to 50%. When Hurricane Harvey hit Houston, Texas, home prices fell by 4.6% in the aftermath. However, lower supply and prices tend to be temporary and should return to normal as homeowners repair damage and the effect of the natural disaster dissipates.
Investors seeking low-priced homes to flip may find some bargains. However, one study shows that investment activity doesn’t really gain steam until at least six months after a disaster and then declines to normal activity levels. The wait-and-see approach gives homeowners time to assess damage, recover insurance claims, and decide whether to stay or leave.
Investor sentiment and market confidence may be shaky in the immediate weeks after a natural disaster. It may take some time for disaster relief to arrive and for investment activities to return to normal. Of course, some disasters are worse than others. A catastrophic hurricane may have market repercussions for months, while a small tornado may not impact home prices at all.
Long-Term Effects on the Housing Market
What happens to home prices over the long term following a hurricane? In general, they tend to rise. One study examined several major hurricanes over the past few decades, including Katrina, Harvey, Charley, and Andrew. In each case, home prices increased significantly a year after the event. For instance, homes in Fort Myers saw a 33.6% value jump after Hurricane Charley in 2004. Home prices increased by 14.1% a year after Katrina in New Orleans.
Another study by the Federal Housing Finance Agency examined home prices in Lee County, Florida, following Hurricane Ian in 2022. While public data showed an increase in median home prices, the agency could not arrive at a definitive conclusion for the change.
Investors aren’t the only ones concerned about home prices following a natural disaster. Regular homebuyers have their own thoughts. A recent Freddie Mac survey found that one in seven buyers consider natural disaster risk when evaluating a property. Nearly one-fourth of homeowners make property improvements following a disaster.
Opportunities for Investors
After a natural disaster, real estate investors may benefit from distressed property buying opportunities. Homeowners may be unwilling to pay for costly repairs and choose to sell their house instead. Others may not have adequate insurance to cover the damage and need to get rid of the property quickly.
If you decide to look for investment properties in a natural disaster area, define your goal. Do you want to repair and flip the property, or do you want to keep it as a rental? A rehab may offer quick profits, with less risk of a follow-up natural disaster during renovation. If you opt to renovate and use the property for a rental, consider the frequency of natural disasters and how they may impact the home. Improving the property to reduce its vulnerabilities in a disaster may offset some investment risk.
Homes damaged in a natural disaster require due diligence during the purchase process. Hidden damage can be costly and eat into profits. Be sure to conduct a thorough inspection, and consider setting aside extra funds for unexpected costs.
Preparing for Future Disasters
Buying a property in a disaster-prone area requires a certain risk tolerance. However, there are ways you can mitigate risk, starting with an in-depth location analysis. The Federal Emergency Management Agency (FEMA) provides a public National Risk Index (NRI) that identifies communities most at risk of natural disasters, and you can view NRI information by county, census tract, or address.
Proper insurance coverage can also mitigate risks. Some homeowner insurance policies exclude weather-related damage, such as flooding and hurricane winds. You may need to purchase additional insurance to obtain protection from these events.
Dominion Financial Services provides fix-and-flip loans for residential properties. If you’re interested in financing your next real estate investment project, contact us to explore your options.
