Hurricanes Katrina and Rita will indicate greater charges of developing in the upcoming, but not instantly
The pure disasters of Hurricanes Katrina and Rita have left upwards of 200,000 properties either ruined or uninhabitable and needing rebuilding. This region has never ever noticed a catastrophe on this scale, so the impacts are difficult to estimate. The National Association of Household Builders launched a report on September 2, 2005 (see for the total report) supplying historic price increases for creating resources following modern key hurricanes. The price enhance ranged from 16% to 45%, implying that increases in building materials are almost certain to occur again.
Place rates in lumber jumped in excess of 10% in the times subsequent Hurricane Katrina as the markets understood the popular swath of destruction that the weather created. While this was absolutely in anticipation of improved demand, the true desire cause is numerous months away. Right until parts are cleaned up and produced inhabitable again, rebuilding simply cannot and will not happen. Therefore, do not anticipate shortages in lumber, plywood, and drywall until finally spring 2006 at the earliest.
A few components will impact long term demand of primary building materials:
* The speed of the insurance field’s and governmental responses. Though up to $100 billion in uninsured losses might come about ([ and at least $20 billion in insured losses may occur (http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/www/story/09-02-2005/0004099642&EDATE=), homeowners are unlikely to receive compensation until adjusters can make their way to affected areas. Additionally, the government will likely step in to ameliorate the uninsured losses to some extent, but such action will take time to work its way to the affected.
* The rate of permanent displacement. If displaced citizens decide to permanently relocate to areas such as Baton Route and Houston, those areas will need to increase housing supply to meet the new, unexpected demand. This will create surges in need for building supplies.
* Speculation in affected areas, particularly New Orleans. The displaced may decide to sell their properties for reduced prices, potentially fueling speculation. As real estate investors look to turn a profit from their purchases, they will need to either rehabilitate or rebuild on the properties, creating new demand for supplies.
Another factor to consider is mortgage rates. The Federal Reserve Bank had been on a trajectory to increase rates before Katrina, and while the damage was widespread, it was a relatively small amount compared to national GDP. While the Fed may temporarily halt the increase in rates, such a slowdown is unlikely to be long-term as long as the economy continues its growth. This will mean, in relative terms, that the cost of building with borrowed money, will increase in the future, regardless of demand for building materials. Therefore, the two factors may combine to compound price increases.
What this means for you
If you are considering building a house in the next three years, you may want to consider starting the process now. Even if you do not plan to actually start in the near future, builders can order future delivery of supplies now. By buying now, builders can lock in current prices and hedge the risk of future increases. Plus, future purchases increase the likelihood of delivery, as supplies will be allocated to the previously made purchase. In past natural disasters, shortages of building supplies were widespread. “Six months after [Hurricane] Ivan, it was definitely tricky to get drywall and lumber,” suggests Tony Glanville, director of development solutions at Bridlewood, a Virginia home builder. By locking in contracts now, you can decrease the odds of struggling with provide shortages and rate increases in the long term.
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© 2005 Jason Hull