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Gulf disaster could devalue coastal real estate by billions of dollars

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Services for Real Estate Pros

Pensacola FL areaThe recent oil spill has had a harsh impact on everything associated with the Gulf of Mexico and its alluring waters. One of the less-discussed issues, so far at least, has been residential real estate and how severely is it going to be affected. CoreLogic - a California analytics, business services and information boutique - has bravely ventured into the topic and has compiled some sobering numbers for everyone involved in housing to debate about.

Residential real estate values are supposed to wane in the coastal areas by $648 million for the first year and possibly rise to as high as $3 billion over five years, CoreLogic estimates. This is based on what has happened there to date, which is already quite a monster. Popular beach destinations string along from Mississippi and around the curve down Florida's west coast and hold something like 600,000 homes within 1,000 meters from the water.

CoreLogic's research is based on much-used techniques for forecasting environmental amenity values on coastal property on one side and then measuring adverse impacts on those values when a calamity like the Deepwater Horizon oil spill strikes, on the other. Like in this case, recreational use of the beaches is either limited or possibly completely restricted for a period. Buyers have paid nice premiums for homes on the water and now that extra expenditure is largely lost.

Moreover, should the already spilled oil somehow work its way around Florida and up its legendary east coast the cost would leap up to $28 billion through five years, CoreLogic reports. Florida's housing market is already on a super strong drip treatment and this would set it back even further.

Many who were planning to take advantage of today's low mortgage rates and purchase something around the Gulf of Mexico are predictably having second thoughts about that. Either they are going to wait and see or then look elsewhere, like further up the east coast, all across the Pacific shoreline and also give lakefront real estate a chance. These alternatives may experience a moderate upswing in activity in the coming months.

If the oil in the Gulf is cleaned up rather quickly and unhindered beach access is restored throughout it could lessen the expected amenity value erosion. Even so, the memories surrounding the events from the rig's explosion and demise to the inaccurate oil flow reports and the economic loss to the seafood industry and to the struggles of wildlife will long linger in everyone's mind. There are hundreds of oil rigs operating in the Gulf and their presence could harm potential buyers' trust that their coastal property investment is safe from another calamity.

Photo by divemasterking2000

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Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

Pamela Seley
West Coast Realty Division - Murrieta, CA
Residential Real Estate Agent serving SW RivCo CA

Esko, my heart goes out to the people who live there and must be reminded of this horrible disaster that didn't have to happen.  Perhaps the area will see a quicker than expected recovery in the environment, one can hope, but with those numbers, it will be a long time to recoup the loss in dollars in real estate.

Aug 06, 2010 06:40 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Esko, Florida is one of the states that has been hard hit with fallen house prices, and like you pointed out this is only going to add to those problems.  Let's hope that they are able to keep the oil from reaching Florida's east coast.

Aug 07, 2010 04:28 AM
Esko Kiuru
Bethesda, MD

Pamela,

We all hope for a complete recovery one day. The loss estimate can of course vary quite a bit, but it'll hurt nevertheless. 

Aug 14, 2010 03:45 PM
Esko Kiuru
Bethesda, MD

George,

Looks like the well has been plugged now, so perhaps further damage is limited.

Aug 14, 2010 03:49 PM
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

I have seen this warning (to coastal residents) in my BPOs.  Interesting to see how this pans out.

Aug 18, 2010 11:36 AM
Esko Kiuru
Bethesda, MD

Renee,

It's too early to draw any strong conclusions one way or another, but it has to have some negative effect even if things get cleaned up pretty good.

Aug 18, 2010 02:35 PM
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

It is too early and my favorite BPO vendor has another warning out about this again this AM!  Very interesting about the awareness!

Aug 23, 2010 01:09 AM
Esko Kiuru
Bethesda, MD

Renee,

Hopefully BP lives up to its commitments.

Aug 23, 2010 02:49 PM