Why Would Anyone Own Florida Real Estate?
Because while disasters can cause a world of hurt, they rarely harm home prices. Here's why
By Jon Birger

(MONEY Magazine) – Hurricane Charley did a prime number on Florida's Sanibel Island, toppling phone poles, ripping roofs off beachfront homes and uprooting stately palms and Australian pines that canopied the resort's main roads. That was on Aug. 13. On Aug. 14, Charlie Ashby's VIP Realty firm sold a four-bedroom, four-bathroom Sanibel house for $1.1 million—just a shade below the asking price.

Surprised? Don't be. Hurricanes Charley, Frances, Ivan and Jeanne were devastating in terms of lost lives and damaged property, but this fearsome foursome hasn't dealt all that much of a blow yet to Florida real estate values. Ashby reports that while sales volume has slowed in Sanibel (homeowners are more focused on cleanup and repairs), home prices have been stable. Real estate experts who've studied natural and man-made disasters around the country say this is typical.

Consider Hurricane Hugo, the category 4 brute that ravaged Charleston, S.C. in September 1989. Three months after the deluge, real estate prices in Charleston were still up 6%, year over year. Similar story in San Francisco following the October 1989 earthquake: By December, San Francisco home prices had risen 16% from the previous year. An even more stunning example comes from Harrisburg, Pa., a few miles from the infamous Three Mile Island nuclear power plant. Two studies found that the 1979 accident at Three Mile Island had no discernible impact on local home prices. That's right: The neighborhood nuke comes thisclose to a meltdown—and property values don't even shudder.

Putting the firm in terra firma Why is real estate so resilient? One answer can be found in the structure of our housing-finance system. Banks often won't lend money to purchase severely damaged homes, and that creates a natural brake on panic selling—a bit like the old five-day waiting period for gun purchases. ("Five days! But I'm mad now!" Homer Simpson barks in a classic episode of The Simpsons.) Once insurance has been collected and repairs completed, homeowners have largely regained their bearings and no longer entertain lowball offers.

Sereta Churchill, owner of a Century 21 franchise in San Francisco, says that while her market shrugged off the '89 quake, well-heeled speculators did snap up bargains after the Oakland fires in '91. Residents were so distraught that many wouldn't consider moving back. A seller's mistake, in hindsight: Prices rebounded—and then some—after the rebuilding. "My advice to anyone in a disaster area," says Churchill, "is to recover emotionally before you start making life-altering decisions about moving out of an area."

Memories fade, and that influences our perception of risk. Research shows that when disasters like floods or hurricanes occur less frequently than once every seven years, people's behavior does not change. "But," notes Grant Thrall, a professor of business geography at the University of Florida, "if you live on a flood plain that starts flooding more frequently than once every seven years, then people do adjust. They'd rather move than rebuild."

Floridians are hardly strangers to hurricanes. What they aren't used to are four separate category 3 storms coming ashore during a single season. The last time three hurricanes hit Florida in one year was 1964, and the last time four hurricanes hit any state was in Texas in 1886. The odds of a meteorological repeat next year are slim, but climatologists do think Florida is entering a period of increased hurricane activity, one in which upper air currents will steer hurricanes toward Florida rather than out to sea. If multiple hurricanes become a regular enough occurrence, residents may decide to leave. Skyrocketing insurance premiums will give some little choice.

Retirees may be the quickest to defect. "Older people are very risk-averse," says Neil Binder, head of Bellmarc Realty, a New York City firm with snowbird clients. "They're going down there for a settled lifestyle, and suddenly their home is gone. They're saying, 'What do I need this for?' "

Is 2004 a Weather Channel anomaly? Stay tuned. Meantime, agents are hopeful that Florida's five-year-old property boom will weather the storms. Prices in Fort Myers, Miami and West Palm Beach had been rising at annualized rates of 15% or more, although Beverly Rothstein, a broker with Exit Team Realty in Coral Springs, expects hurricane fatigue to temper rates of increase. Even so, buyers (including speculators now descending on Florida for bargains) are deluding themselves if they expect the storms to blow in actual declines. "Prices are not going down," Rothstein insists. "This is the strongest real estate market I've ever encountered, and I don't think hurricanes or any other natural disasters are going to wipe it out." —Jon Birger