Buying in the Hurricane Hot Zone


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Almost one year ago, Hurricane Katrina devastated the Gulf Coast. The Category 3 storm, which made landfall on the morning of Aug. 29, 2005, generated winds of up to 175 mph, caused more than $81.2 billion in damage, killed more than 1,800 people, and displaced many thousands more, of which a large percentage have yet to return.

And now, at the peak of hurricane season in the southern U.S. and with the scars of Katrina still fresh, it would seem that most sensible people would think twice about living on the Gulf Coast. Yet because it is also considered one of the most beautiful, and affordable, coastlines in the country, one where much of the population has deep roots, people have not abandoned the region.

Moreover, many new developers and private individuals are buying there hoping to take advantage of the billions of dollars in federal and state aid, as well as the money from casino operators such as Harrah's (HET) and other private-sector investors, being pumped in to rebuild and, in many cases, improve the area. In addition to primary residences, much of the new construction is for second homes in some of the hardest-hit areas.

As a result, home prices in many areas in the region are higher than first projected, and its real estate market is bouncing back sooner than expected. In spite of storms and high insurance premiums, if there were there any deals immediately after Katrina hit, they aren't there anymore.

SALES SURGE. This should come as no surprise to people familiar with Florida real estate. Despite getting regularly walloped by natural disasters, the Sunshine State still boasts some of the priciest property in the country, especially on the extremely vulnerable coastline. The Caribbean, too, which is usually the first stop on any hurricane or tropical storm route, is also rife with lavish seven-figure estates.

After a disaster, the market generally takes 18 months to recover, says John T. Reed, editor of Real Estate Investor's Monthly, and author and publisher of books on real estate investment. "A disaster turns an area into a leper whom people are shunning," says Reed. "But if you look closely why people are shunning, you'll see if reasons are invalid, like 'I don't want to live in California because there are earthquakes,' or correctable, like lifting houses up on stilts or reinforcing buildings."

For now, sales are brisk, especially in select cities such as New Orleans, Biloxi, Miss., and Galveston, Tex. According to a study by the University of New Orleans, home prices in the Crescent City climbed 10% for the first quarter of 2006, and more than 40% in the city's most desirable neighborhoods. The study also found that for the first three months of 2006, the price of an average single-family home rose to $215,179, up from the average $195,377 in the first eight months of 2005.

Home sales in states such as Alabama and Mississippi—both areas hit by Katrina—are also doing better than the country as a whole, post-Katrina. Mobile, Ala., house prices appreciated an average of 14.9% and Galveston's 9.7%. "There's a general trend in the Southeast region where home sales are rising while the rest of the country's sales are declining, because the region is very affordable," says Lawrence Yun, an economist with the National Assn. of Realtors in Chicago.

DEPENDS ON THE WEATHER. In pricier areas, condominiums are popping up, and houses in the historic districts are being sold. Eric Bouler, a Prudential Gardner agent in New Orleans, is working on a new condo project with homes ranging from $250,000 to $500,000.

Second-homers and people changing their lifestyle are being targeted. David Smith, a realtor with Dorian-Smith Sotheby's, works mostly on historic properties. Only one of his 50 listings flooded, since the historic neighborhoods were saved from total destruction. This month, he closed on three major properties in the French Quarter.

But that doesn't mean the market has peaked along the Gulf Coast. Many potential investors are still waiting to see if the 2006 hurricane season will be a reprise of 2005. Even if it is not, the infrastructure and psyches of the region could still be damaged by a storm less fierce than Katrina.

"Certainly the storm size and intensity of Katrina is extremely unlikely this year," says Ken Reeves, AccuWeather's director of forecast operations. And if the region emerges with relatively little damage, prices will continue to rise. If it's a bad season, prices will plummet. For those with fortitude and financial wherewithal, that could represent one of the best buying opportunities the region has seen in decades.

So, if you're feeling lucky and think now is the time to invest, click here for a slide show of real estate listings in the hardest-hit hurricane zones.


Later, Baby
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