In the wake of Hurricane Sandy, the megastorm that met up with a couple of other weather systems on the Eastern Seaboard to wreak havoc on 12 states, US economists and disaster experts are beginning to assess the economic impact of the storm on the housing market as well as the economy as a whole.
Sandy swept north on the final weekend of October, leaving damage estimated between $10 and $20 billion (yes, billion) in potential losses to individuals and the economies of those states. Preliminary figures provided by US economists indicate that at least 284,000 properties worth about $87 billion were directly impacted by Sandy’s force. Add to that the economic losses in cities such as New York, in which parts of the city are still shut down, and Sandy appears to have been the perfect storm to create a blow to economic recovery.
One area of concern for homeowners and property investors is the effect of Sandy on mortgage and foreclosure issues. Although some loan experts are minimizing Sandy’s impact on the home mortgage industry, calling it a temporary blip that could depress mortgage applications in the very short term, federal mortgage agencies Fannie Mae and Freddie Mac have stepped in to assist homeowners facing losses due to Sandy.
These two mortgage giants, collectively responsible either directly or through secondary lending services for over half the mortgages held in the US and over 90% of new loan applications, are offering to suspend mortgage payments for up to one year for homeowners in federally declared disaster areas. What’s more, foreclosures and bankruptcy processes have also been put on hold to give property owners a chance to rebuild.
This plan gives homeowners and investors a chance to rebuild and recover losses. But it also puts foreclosure processing on hold for numerous properties which will likely end up on the market in 2013, as these cases join the already large backlog of cases still being processed from the housing collapse of a few years ago.
But although some mortgage industry experts predict a drop on the number of new mortgage applications in affected areas, this is expected to be a temporary change. And, some housing related industries such as home repair and construction should see a boost due to storm related repairs, but only in the hard-hit regions. Economists doubt that the effects of Sandy will
have a significant or long lasting effect on the economy as a whole, even though it flattened commerce as usual in a number of large cities.
Financial experts point out that Hurricane Katrina, the storm which led to the devastation of New Orleans caused more overall damage and required a much longer recovery, which in some areas is still ongoing. Still, the impact even of Katrina on the country’s overall economy was relatively small outside the affected areas.
Federal efforts to ease the pressure of mortgage payments on distressed homeowners illustrate Jason Hartman’s recommendation for income property investing: maintain mortgages on properties rather than paying them off. In this way, property owners are eligible for relief such as the options offered by Freddie Mac and Fannie Mae – and their own money stays in the bank. (Top image: Flickr | born1945)
The American Monetary Association
