Friday, October 28, 2005

Hurricane Impact on Prices

Is it possible for a hurricane to impact the value of property that was physically undamaged? In Louisiana and neighboring states after Hurricane Katrina, undamaged property, both commercial and residential, saw immediate increased demand and prices as people and businesses were forced to relocate. Another less obvious effect post-hurricane is the increase in the prices of building materials and labor. Florida builders have reported price increases in plywood and OSB sheeting ranging from 30 to 50% since the first of September. Asphalt shingles have been increasing steadily at around 5% per month with manufacturers struggling to keep up with demand and actually rationing some suppliers. Before the storms we were seeing cement costs rising about 20% every 6 months and similar moves in sheetrock. In addition to these rapidly rising costs, much of the construction labor force has shifted to the Katrina devastated areas. This has contributed to increased labor costs for Florida builders. How does this impact existing property value? It increases the costs to replace and the costs to build new competing properties. This increase has not shown up yet in the prices of MLS listed properties as we are in the middle of the seasonal slow season and we're on the heels of a big run-up in prices. However, the economic reality is that it must trickle down to asking prices at some point. I think this is bullish for existing Florida property values. As always, these are my own opinions based on reported facts and lots of creative thinking. Email me if you'd like to share your own thoughts.