Hurricane Impact Could Exceed $20 Billion

Hurricane Sandy swept through 12 U.S. states, causing floods and fires, and an estimated $10 billion to $20 billion in potential losses according to estimates from research firm Capital Economics.

Mortgage Bankers Association CEO David Stevens said he expects loan application numbers and rates to be affected for the period that includes Hurricane Sandy. But overall, he views the storm as a “temporary blip” that will have no long term affects or significant impact on the mortgage finance system. Some industries, including home construction and repair, will no doubt see a boost in the aftermath.

Last year’s Hurricane Irene, which was less severe, ended up costing the Northeast region $10 billion while 2005’s Hurricane Katrina led to $100 billion in cleanup expenses around the Gulf Coast, according to data from Paul Ashworth, chief U.S. economist for Capital Economics.

Despite the negative impact of the hurricane, Capital Economics contends Sandy’s overall effect on economic output “is likely to be small,” although the economy will take a hit early on.

The financial impact will be short-term and over before the end of this quarter, Capital Economics said. When factoring in the expected boost to GDP on cleanup activity, the overall impact is modest. Much of the clean up spending will be born by insurers and large global reinsurance firms, many of which are based in Europe.

The states impacted by Sandy represent 23% of the nation’s gross domestic product, with the New York metropolitan area alone accounting for 10% of GDP.

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Pending Home Sales Up in September

Forecasting increases in home prices and completed transactions for the year, the National Association of Realtors is starting to report slow, but positive improvement for housing.

According to NAR, pending home sales jumped 14.5%, compared to September 2011. In comparison, August pending home sales grew 10.7%, suggesting overall improvement in 2012.

NAR chief economist, Lawrence Yun, stated it is the pending home sales that continue to hold a higher ground. “This means only minor movement is likely in near-term existing-home sales, but with positive underlying market fundamentals they should continue on an uptrend in 2013.”

While housing has a long road ahead before anyone can call it a full recovery, small, yet positive economic indicators in housing are slowly emerging, with the PHSI being one of them, given that it has risen for 17 consecutive months on a year-over-year basis. This September revealed a significant increase in contract activity versus the previous year in every region except the West, which struggles with a limited inventory.

It is predicted that over the next year, the conditions of housing will remain affordable, with the 30-year-fixed-rate mortgage remaining remarkably low until it’s gradual 4% rise toward the second half of 2013.

Additionally, NAR says that completed existing-home sales in 2012 will total close to 4.6 million (an increase of 9.0 percent), and are projected to rise about 9.0 percent next year to nearly 5.1 million. With notably lower housing inventory, the national median existing-home price is expected to increase 6.0 percent this year and 5.0 percent in 2013.

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August Home Prices at 2-Year High

U.S. home prices continued to increase in August with the Case-Shiller 20-city Home Price Index increasing 0.9 percent to its highest level since September 2010. The index rose in 19 of the 20 cities included in the index.

Economists had expected the 20-city index to be 2.0 percent ahead of August 2011, when in fact it was 1.3 percent ahead of that measured time period.

The median price of an existing single family home dropped 1.5 percent in August, according to the National Association of Realtors but was up 8.0 percent from August 2011. In July, the median price of an existing single family home was up 9.7 percent from one year earlier.

Home values play a significant role in the nation’s economy following the “wealth effect” which holds that households spend more as perceived wealth increases. Increases in household net worth due to real estate – rather than stock – values have, according to studies, a greater impact on consumption which is more than 70 percent of GDP.