Will Harvey Negatively Impact the Real Estate Market?
The potential exists for Hurricane Harvey to cause problems for the Texas real estate market beyond the immediate issue of the destruction caused to thousands of existing structures, reports The Mortgage Reports. The late-summer storm that hit Eastern Texas, displaced millions, and reportedly created more than $100 billion in damage is already a nightmare for local residents.
Mortgage rates still near all-time low
While Hurricane Harvey was a huge event, worldwide supply and demand for money determine what American consumers pay for various forms of financing, including mortgages. The prime mortgage rates reportedly averaged 3.86 percent for the week of August 24, prior to the storm. Prime mortgage rates actually fell four basis points, to 3.82 percent, for the week of August 31. For storm victims, the current mortgage rates are good news, since borrowing costs for rebuilding and relocating are still near historic lows.
Construction supply costs could spike
However, new home construction is more likely to be impacted by the fallout of Hurricane Harvey, not just in Eastern Texas, but potentially nationwide. So far, more than 100,000 units are estimated to have been damaged or destroyed by the storm, but final numbers may be “very much higher.” Impacted areas are spread across a wide area, along the coast from Corpus Christi to north of Galveston, and inland to metro areas including Houston.
The cost of building supplies could spike nationwide, as vast numbers of Texas homes are in need of repair or demolition and rebuilding. The East Texas flooding could create “enormous demand,” and construction delays could occur if builders have difficulty finding lumber, drywall, flooring, carpeting, singles, or other supplies. Such price increases and delays could push up home prices even more.
NFIP up for renewal
Another factor to consider is flood insurance. The National Flood Insurance Program (NFIP) is reportedly in “huge trouble,” already owing the Treasury $24.6 billion prior to any new claims by Harvey storm victims. Moreover, the NFIP program is scheduled to end at the end of September without another extension by Congress. If the program were to expire, properties in some flood prone areas could become very difficult to finance, due to a lack of affordable insurance. While the program will likely get another extension, the risk exists for homeownership to become even more expensive if it doesn’t.