Hurricane Katrina Impact Mixed for Economy and Housing

For more information contact:

Walter Molony, 202/383-1177 (wmolony@realtors.org)
Lucien Salvant, 202/383-1176 (lsalvant@realtors.org)


WASHINGTON (September 13, 2005) – The direct housing needs for evacuees of Hurricane Katrina and lower interest rates that will soften its economic hit mean there will be long-term consequences for housing as well as the overall economy, according to the National Association of Realtors^®.


David Lereah, NAR’s chief economist, said shortages of building materials, made worse by the need to rebuild in areas hit by Katrina, will increase construction costs. “Given the general tight inventory of homes available for sale across the country, rebuilding in the region of the Gulf Coast will place additional pressure on overall home prices,” Lereah said. “As displaced residents try to get back on their feet in new locations, home sales have spiked – along with rental demand – in regions surrounding the disaster zone.”

Existing-home sales are expected to increase 3.4 percent to 7.02 million this year, while new-home sales are forecast to rise 6.7 percent to 1.28 million for 2005 – both would be records. Last month, the totals were projected to be 6.98 million and 1.26 million respectively. Total housing starts – single-family and multifamily – should grow by 4.8 percent to 2.04 million units this year, the highest since 1973; single-family starts are expected at a record of 1.69 million.

“Mortgage interest rates will rise more slowly as a result of post-storm economic conditions to accommodate the losses of homes, jobs and businesses,” Lereah said. “The lower level of borrowing costs will provide additional lift to home sales in other regions. Demand will continue to outstrip supply in most areas, which will keep pressure on home prices.” Total housing, commercial and public property losses by Katrina are in the range of $100 billion.

The 30-year fixed-rate mortgage is forecast to rise more slowly, reaching 5.9 percent in the fourth quarter, and 6.7 percent by the end of 2006. The national median existing-home price for all housing types is projected to rise 10.8 percent in 2005 to $205,100. With a greater concentration of construction in lower cost areas, the median new-home price should increase 3.8 percent to $229,300 this year before rising at a faster clip of 6.2 percent in 2006.

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NAR President Al Mansell of Salt Lake City said the association is focused on people displaced by the storm. “The Realtors^® Relief Foundation is providing emergency relief for hurricane victims,” he said. “Working with our state and local associations, this is helping to provide immediate shelter needs and essential supplies. We connect very strongly with these needs because 28,000 of our own members have their lost homes and businesses.”

The foundation has already collected nearly $2.8 million for relief efforts; NAR is absorbing all administrative costs to provide emergency relief for hurricane victims in Louisiana, Mississippi and Alabama, including displaced Realtors^®. Many Realtor^® associations throughout the region have developed a special information template that members can use to forward information to the federal government about available inventory that could be used to house people displaced by the storm.

It is estimated that most of the flooded homes will have to be rebuilt, including about 80 percent of the homes in the city of New Orleans. Along with homes that will have to be replaced along the Mississippi and Alabama coastline, a minimum of 200,000 homes have been lost. However, the level of new housing construction will be only 130,000 higher than pre-Katrina projections.

“Housing construction will be insufficient to replace the number of homes destroyed or that will have to be demolished,” Mansell said. “Apartment vacancies are dwindling, and mobile homes will help to address the jump in housing needs.” He is meeting with Realtors^® and member associations in the Gulf Coast region this week to present relief checks and to assess long term consequences.

The Louisiana Realtors^® Association has launched www.HurricaneHousing.net. Realtor^® members and property owners alike can submit data on available shelter in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi and Texas, and people displaced by the hurricane can search the database directly.

The storm’s impact will cause the economy to grow more slowly than in earlier projections, but the economy will get a lift once rebuilding gets under way. The U.S. gross domestic product is forecast to grow at a pace of 2.3 percent in the third quarter and 2.7 percent in the fourth quarter, with GDP for all of 2006 pegged at 3.8 percent.

The unemployment rate is seen to peak at 5.3 percent during the first half of next year before declining in the second half. The Consumer Price Index is expected to increase 3.5 percent this year, while inflation-adjusted disposable personal income should grow by 1.4 percent. The consumer confidence index is likely to dip to 100 early next year, and then rise to 107 by the end of 2006.

The National Association of Realtors^®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1 million members involved in all aspects of the residential and commercial real estate industries.

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NOTE: The commercial real estate forecast news release has been postponed for additional analysis of the hurricane impact until September 14.

The next existing-home sales release will be September 26; the Pending Home Sales Index is scheduled for October 5; and the next forecast will be October 12.

Information about NAR is available at http://www.realtor.org. This and other news releases are posted in the Web site’s “News Media” section in the NAR Media Center. Statistical data, charts and surveys also may be found in the NAR Media Center by clicking on Economic & Housing Statistics.