Oct. 31 (Bloomberg) -- Demand for construction workers and materials is likely to receive a boost as homeowners in coastal areas of New York and New Jersey rebuild after their properties were devastated by flooding and heavy winds.
“It’s the most adverse way you ever want to see positive growth,” Tom Jeffery, chief hazard scientist for CoreLogic Inc., said in a telephone interview. “But a high percent of damaged properties are going to be repaired.”
CoreLogic, a real estate information service based in Irvine, California, estimated that 95,000 homes with a value of $40 billion are located in the coastal areas hit hardest by Sandy, which made landfall on the Jersey Shore the evening of Oct. 29, pushing a 13-foot (4-meter) surge of wind-driven water over levees, under foundations and into basements.
Insured losses from Sandy to onshore properties, including all types of commercial and residential real estate and items such as automobiles, will range from $7 billion to $15 billion, according to AIR Worldwide, a catastrophe-modeling firm based in Boston. Reis Inc., a New York-based research firm, gave a preliminary estimate of total property damage from the storm of $30 billion to $40 billion, countered by reconstruction efforts valued at $25 billion to $30 billion.
“This nets out to around a $10 to $15 billion loss for the economy as a whole,” Victor Calanog, head of research and economics at Reis, said in an e-mail.
Most homes in low-lying coastal areas are required to have flood insurance, which should cover much of the repair costs, Jeffery said. Federal and local governments have offered financial assistance to help uninsured property owners rebuild after other disasters, such as Hurricane Katrina in 2005 and last year’s Hurricane Irene, he said.
Fannie Mae and Freddie Mac, which control more than half of all U.S. mortgages, announced yesterday they were offering as much as one year of payment forbearance for owners of properties harmed by Sandy in communities designated national disaster areas.
Almost 739,000 properties in Sandy’s path have negative equity of at least 25 percent, potentially giving owners of those homes a reason to stop paying the mortgage and be foreclosed upon, according to RealtyTrac Inc.
U.S. construction employment is still recovering from the last recession, with about 2.2 million fewer jobs today than the 2007 peak of 7.7 million workers, according to the Bureau of Labor Statistics.
“We are likely to see localized spikes in construction employment throughout November and the winter as crews are mobilized to rebuild communities damaged by Hurricane Sandy,” Ken Simonson, chief economist for the Associated General Contractors of America, an industry trade group based in Washington, said in a statement yesterday.
The total impact on employment from reconstruction work, however, “is likely to be minimal, as planned projects in hurricane-damaged communities are put on hold while people rebuild,” Simonson said.
Housing and homebuilding, which led the U.S. into the recession, have contributed to gross domestic product growth this year. Real residential fixed investment increased 14.4 percent in the third quarter, after an 8.5 percent gain in the previous three months, the U.S. Bureau of Economic Affairs reported Oct. 26.
Home starts jumped to an annual pace of 872,000 in September, a four-year high, Commerce Department figures showed on Oct. 17.
Prices for existing homes climbed in August by the most in two years as low interest rates, a diminishing supply of discounted foreclosed properties and a growing U.S. economy spurred demand. The S&P/Case-Shiller index of property values in 20 cities rose 2 percent in August from a year earlier, the biggest annual gain since July 2010, the group said yesterday. The median forecast of 25 economists in a Bloomberg survey projected a 1.9 percent gain.
In the New York metropolitan area, prices fell 2.3 percent in the 12 months through August. Only Atlanta had a bigger drop among the 20 cities in the index.
The storm is more likely to raise labor costs than prices for materials, said Martin Connor, chief financial officer at Horsham, Pennsylvania-based Toll Brothers Inc., the largest U.S. luxury-home builder.
“It’s too early to tell,” Connor said in a telephone interview from his home in Bryn Mawr, Pennsylvania. “The advantage we have is offering a steady stream of work versus some of our competition.”
About half of Toll’s business is between the Washington and Boston areas, where Sandy did the most damage. The only confirmed damage to company properties was water intrusion at a high-rise under construction in Hoboken, New Jersey, Connor said.
Sandy and its aftermath are hurting Toll’s ability to complete home sales as the company’s fiscal year comes to an end today, Connor said. Insurers are reluctant to approve policies required for borrowers until they reinspect properties, a process that probably will take a back seat to claims filed by storm-affected homeowners, he said.
For Hovnanian Enterprises Inc., the storm may delay sale completions in New Jersey, where it’s the largest homebuilder, as well as Delaware, Virginia and other areas, forcing the Red Bank, New Jersey-based company to “pedal faster to catch up,” Chief Financial Officer Larry Sorsby said.
“It’s just going to be a speed bump along the road to recovery,” Sorsby said by telephone from his home in Colts Neck, New Jersey. “It’s a setback in areas impacted by this once-in-lifetime storm.”
Hovnanian rose 0.7 percent to $4.30 at the close of trading in New York. Today was the first day of U.S. trading since Sandy made landfall. Toll dropped 2.4 percent to $33.01.
Sandy is likely to delay decisions to buy new homes in the mid-Atlantic area until the Thanksgiving holiday and beyond, said Stephen East, an analyst at International Strategy & Investment Group in Saint Charles, Missouri.
“For us, the biggest concern from the storm is the indeterminate amount of time it takes the consumer to get grounded and return to the housing market,” he said in an e-mail. “It is our best guess it will take prospects in the region a couple weeks for home purchases to return to the forefront of buyers’ minds.”
The storm is likely to provide a benefit to such companies as Owens Corning Inc., which manufactures roofing supplies, and Beacon Roofing Supply Inc., which distributes them, said Jim Barrett, an analyst at CL King & Associates in New York.
“It would potentially help both of these companies if, in fact, you started hearing about significant roof damage as opposed to people just being flooded out,” said Barrett who has a buy rating on the shares of both Owens Corning and Beacon.
Other companies that may get a boost in business from Sandy include Weyerhaeuser Co. and Louisiana-Pacific Corp., which produce lumber, and drywall companies such as USG Corp. and Eagle Materials Inc., East said.
The hurricane also may drive sales for companies such as Generac Holdings Inc., a manufacturer of power generators, said Stanley Elliott, an analyst with Stifel Nicolaus & Co. in Richmond, Virginia, who has a hold rating on the company’s shares.
Many homeowners rushed out to buy portable generators before Sandy. Now, after three storms, including the derecho -- a widespread storm of wind and thunder -- in July and 2011’s Hurricane Irene, customers might consider a permanently installed backup unit, which can cost about $2,000 plus installation, he said.
“You’ve had three big events within a short period of time and people might get to a tipping point and this may push some people over the edge,” Elliott said.
Generac, based in Waukesha, Wisconsin, rose 20 percent to $34 today after reporting a 26 percent increase in third-quarter sales and increasing its forecast for 2012 earnings.
Demand for self-storage companies such as Extra Space Storage Inc., Sovran Self Storage Inc. and CubeSmart also tends to rise in the wake of storms like Sandy as homeowners, contractors and suppliers rent space as they prepare for reconstruction, according to David Toti, an analyst at Cantor Fitzgerald in New York.
Extra Space Storage, based in Salt Lake City, has the most real estate in areas hit by the storm -- about 33 percent of its property portfolio, compared with 24 percent for Williamsville, New York-based Sovran, Toti wrote.
“Depending on the extent of the damage, the surge in demand can have a short-term impact that leaves a demand void in its wake,” he said in the note. “The storage needs generated by hurricane clean-up can last from 6 to 18 months (a typical residential-construction duration), then recede -- which can set the stage for declining occupancies and more competitive pricing.”
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