Wednesday, September 07, 2005

Did Katrina Reinflate the Housing Bubble?

You bet she did. First of all, if the Fed raises short-term rates this month it will be the last time they do it for the year. Meanwhile, mortgage interest rates are going to remain low, or slip lower due to a variety of factors, not the least of which is the influx of rebuilding activity from Hurricane Katrina. You're also going to see new housing costs go up simply as a function of supply and demand for labor and materials. As stated in several stories, including this one in the Los Angeles Times by business reporter Annette Haddad, the rebuilding effort for Katrina is going to push up everything from plywood to manpower. Bottom line: Houses are going to cost more to build, a cost that is sure to be passed along to the consumer. Factor in the increased cost of fuel, and the coming hike in insurance premiums (If you doubt that this is coming, then you should research the mechanics of insurance and reinsurance), and there can be no doubt. That hissing sound that so many people have interpreted as a leak just turned into the sound of that bubble inflating more.

This from the LA Times :
Total reconstruction costs could run as high as $100 billion, based on the latest estimates, making the Katrina rebuilding effort the costliest in U.S. history.

Many of the 200,000 homes in New Orleans — along with hundreds of homes elsewhere — are expected to require total rebuilding because they are likely to be tagged as uninhabitable by federal relief authorities. Other homes might be deemed salvageable but still need repairs.
And this:
"Right now, if you ask our members what the No. 1 problem they're facing, it's a labor shortage," said Jerry Howard, chief executive of the National Assn. of Home Builders, an industry trade group. Ensuring that there will be enough skilled labor is expected to be a "difficult challenge," Howard said.
Another interesting point is made in this 9/04 New York Times story by Motoko Rich, which says:
In a weird twist of fate, the storm could even extend the housing boom, which in recent weeks had seemed to be running out of steam. That is certainly true in places like Houston, Atlanta and Baton Rouge, La., which are experiencing a surge in rental and homebuying activity as a result of the storm and the exodus that followed.

Read the entire LA TImes story at this link.
Read the entire New York Times story at this link.

— The Boy in the Big Housing Bubble