Oil spill could drag down Gulf home prices by $3 billion

NEW YORK (CNNMoney.com) -- The BP oil spill in the Gulf could cost homeowners $68 million in lost property value over the next year -- and up to $3 billion in the next five years, according to a report released Monday.

There are more than 71,000 homes impacted, primarily in the Panhandle region of Florida plus Alabama and Mississippi, according to the report by real estate data provider CoreLogic. Gulfport. Miss., beachfront homes are expected to be hit the hardest, with an average loss per home of $56,000, followed by Mobile, Ala., ($45,000) and Pensacola, Fla. ($40,000).

Overall, the Pensacola area is expected to absorb the largest amount of the lost home value ($1.6 billion), with the Gulfport, Miss., coming in second ($1.2 billion).

"The loss in these markets could be particularly high," said Mark Fleming, CoreLogic's chief economist.

The main factor in the reduced prices, Fleming said, is that people wont' be willing to pay as much for soiled beachfront property. However, he added, buyers often overly discount properties after a major storm or tragedy.

A destructive hurricane, for example, may hit an area once every 20 years or so. If there hasn't been one for, say 10 years, buyers don't worry about it and bid up the prices of beach-front properties.

If, on the other hand, a hurricane hit last month, buyers have the destructive effects of the storm fresh in their minds and tend to exaggerate the risk, temporarily sending prices down to the point where they overshoot the actual loss in property values.

Just as paralyzing for house hunters is uncertainty. How can someone decide to buy when there is a threat that massive amounts of oil will wash up on their backdoor?

The CoreLogic report based its home-valuation calculations on tried-and-true methods of estimating the impact of waterfront proximity on home prices. It's pretty simple: Compare identical homes, one on the beach, the other a block inland or a mile from the shore. The difference between the prices is the premium buyers are willing to pay for a shore front home.

Still, Fleming cautioned that these calculations are guidelines, they're not definitive.

"When we started, we reasoned it would be a reasonable scenario, a likely impact of the spill on prices," he said.

The situation, however, is quite fluid and the latest news carries some cause for optimism. The well cap appears to be holding and the oil has not fouled too many places.

Still, the spill has already had a major impact on Gulfport real estate. According to Karen Glass, a broker for five Coldwell Banker Alfonso real estate offices in the area, her team booked 160 sales in July compared with 237 during July 2009, a fall of 32%.

"It's not people telling us the oil spill is keeping them away, although we do hear some of that," she said. "It's that we're just not getting any buyer calls at all."