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 Katrina Shockwaves Affects Real Estate Industry (Part 1)
By: Darin "Sid" Cameron, CRS
Mon, Sep 12th, 2005 10:18 pm

Realty Times reported this week that Hurricane Katrina will likely cause a slow down in the near-term economy while causing new housing costs to rise by 3-5%. This is based on a Freddie Mac report from earlier in the week. However most real estate experts tend to be in agreement that the worst of this storm, for those of us not living in the Southeast, won’t be felt for months to come.

Make no mistake; the shockwave effects of Katrina will make an impact on the nation's real estate industry. Increased fuel supplies have already begun to increase the cost of running construction equipment. However hardest hit will be new housing construction where the shortage of key construction materials rerouted to the Southeast (lumber, drywall, concrete, etc.) will not only increase material costs but may also cause construction delays as builders wait on materials. Hardest hit will be the small builders and neighborhood rehabbers who don’t have the ability to lock in long term supply contracts.

News sources from all over the country- from Pennsylvania to Arizona, from Baltimore even all the way to Hawaii- are warning of the impact Katrina will have on the local construction trade.

Although Hurricane’s have historically caused short term price increases of construction materials (as demand outstrips supply), Katrina packed a double punch by not only damaging and destroying a lot of wood-built structures across the whole of the southeast, but the flooding in New Orleans, a major U.S. city, will cause immediate demand for building materials as homeowners replace flooded out drywall, plywood flooring, even carpeting to homes that otherwise weren’t damaged by the hurricane (or totally destroyed by the flooding). Combine this with the damage done to U.S. oil production as well as the Mississippi lumber industry, and picture begins to look bleak.

So what does this mean to the St. Louis real estate industry?

As a home buyer looking to buy a new construction home, expect those home prices to slowly start inching higher as builders start to estimate for higher construction costs. If you’ve been thinking about making a purchase, you might want to evaluate locking into a price now before builders start to get a grasp of their true costs. How high new home prices will climb will ultimately be determined by several factors:

- Where fuel prices ultimately settle. Although important, the cost of running a bulldozer today or tomorrow is less important to the overall cost of building a home than the long term increase we are apt to see in construction materials caused by increased shipping costs.
- If demand for building materials cause shortages. The profitability for a home builder can be quickly drained by construction delays. A shortage of key supplies, such as drywall, plywood, or 2x4’s, can cause a ripple effect with subcontractors- turning a two week delay into several months. More important, a delay of even a few weeks can cause a builder to loose thousands of dollars in financing and labor costs- costs that ultimately have to be passed on to future home buyers.
- What impact, if any, Katrina has on the local labor pool. Some experts are already predicting that the pending construction boom to rebuild cities like New Orleans and Gulfport will entice skilled construction laborers from around the country to relocate to the Southeast in search of higher wages. It is unknown if it will ultimately cause a shortage of skilled labor in markets like St. Louis, or force employers to pay higher wages to keep their people.
- Interest Rates are the other factor. A decline in interest rates, which has been predicted by some, could always offset some of these other costs for a builder. Increase in rates could only exacerbate the situation.

In Part 2 of this article we will look forward and discuss worst case scenarios.

Referenced to write this article:

[ Next Article: Katrina Shockwaves Affects Real Estate Industry (Part 2) ]
[ Previous Article: Marshall Faulk's Katrina Relief Site ]

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Darin 'Sid' Cameron, CRS

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Darin "Sid" Cameron spent 15 years working in the technology industry which in 1998 relocated him to St. Louis. In 2004 he took over web development tasks for Kimberly's real estate team and later became the full-time Marketing and Operations Director in 2005. In 2011 Sid launched two brokerages, The Realty Store, Inc. and Realty Referral Partners, Inc, while continuing to perform marketing and operations for Kimberly's team. Sid holds a real estate broker's license in Missouri, CRS certification and was the first CyberStar in the St. Louis area.
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