BP Spill May Cost Gulf Coast Homes $56,000 Apiece in Value
Gulf of Mexico coastal homes may lose as much as $56,000 each in value as buyers shun areas marred by the worst oil spill in U.S. history, according to CoreLogic Inc.
Waterfront properties in Gulfport, Mississippi, face the biggest average declines, followed by those in Mobile, Alabama, and Pensacola, Florida, the real estate data company said in a report. Losses along the coast may total $648 million in 2010 and $3 billion over five years, CoreLogic estimates.
The disaster threatens to wipe out the premium Gulf Coast homebuyers paid for ocean views and water access. BP Plc’s efforts to staunch the oil may not be enough to stem a drop in property prices, said Mark Fleming, chief economist of Santa Ana, California-based CoreLogic.
“It’s not only about whether the oil arrives,” Fleming said in a telephone interview from Vienna, Virginia. “There’s evidence something as catastrophic as this scares people away.”
More than 600,000 properties may be affected from Alabama to Florida’s Atlantic coast, according to CoreLogic. The long- term impact on beaches depends on sea and wind currents, cleanup efforts and stigma, Fleming said.
In counties with the greatest exposure -- Harrison, Mississippi; Mobile, Alabama; and Escambia, Florida -- the spill may diminish values for about 71,000 homes, CoreLogic said.
Property owners may recover some losses. BP booked a pre- tax charge of $32.2 billion related to costs from the leak, including $20 billion reserved to pay damages. The London-based company will compensate for lost earnings, cleanup and property damage, according to its website.
BP is reviewing each claim individually, relying on the Oil Pollution Act of 1990, which lays out a framework for compensation including for property value losses, Steve Rinehart, a spokesman for the oil company, said in a telephone interview from Houston.
Florida Governor Charlie Crist signed an executive order July 21 authorizing property appraisers in 26 Florida counties to update assessments so owners can “substantiate claims against BP or other responsible parties.”
Christine Karpinski, who owns condominiums she rents to vacationers in Panama City and Destin, Florida, said BP paid her for lost rent in May and June and left open the possibility of reimbursement for any decline in value. It’s difficult to estimate price declines because no one is willing to buy properties, she said.
“Things aren’t selling now,” Karpinski said in a telephone interview from Austin, Texas, where she works for Homeaway Inc., a vacation rental company. “Anything you say about pricing is just speculative.”
Kenneth Feinberg, the Washington attorney tapped by BP and the Obama administration to decide claims, said home value reimbursements will be made on a case-by-case basis.
“There’s no question that the property value has diminished as a result of the spill,” he said during a June 30 congressional hearing. “That doesn’t mean that every property is entitled to compensation.”
For its damage estimates, CoreLogic examined records of 600,000 residential properties within 1,000 meters of the coast in 15 counties in Mississippi, Alabama and Florida. The company had insufficient property data to analyze Louisiana’s coast, Fleming said. Potential losses were calculated by comparing the price differences of beachfront and inland homes, he said.
“Buyers of homes in these coastal communities paid premiums when they purchased their homes for access to the beaches,” Fleming said.
BP plans this week to inject mud down its Macondo well in the Gulf to begin permanently plugging the gusher.
CoreLogic separated the potential oil-related price declines from those tied to economic drivers such as unemployment or foreclosures, Fleming said. Florida has the third-highest rate of foreclosure filings in the nation, behind Nevada and Arizona, according to Irvine, California-based RealtyTrac Inc.
The average oil-related loss is estimated at $56,469 per home in the Gulfport-Biloxi, Mississippi area, where 21,221 properties lie within 1,000 meters of the waterfront, Fleming said. Estimated losses average $44,662 in Mobile, where 10,520 homes may be affected. Some 39,368 homes in Pensacola may lose an average of $39,882 in value.
Buyers stopped calling real estate agents in the Pensacola area after the end of April, said David Wilhite, president of the Pensacola Association of Realtors.
“Pending sales were down almost 50 percent in May and June,” Wilhite said. “That’s a real harbinger.”
The median single-family home price in Pensacola was $151,300 in June, down 14 percent from a peak of $175,600 in July 2005, according to Florida Association of Realtors data.
The oil spill may depress values of all residential and commercial properties by 10 percent along a 600-mile stretch from Louisiana to Florida, according to a June estimate by CoStar Group Inc., a Bethesda, Maryland-based commercial property information company. That would total about $4.3 billion in losses.
Properties may be spared from the worst-case scenario as reports of tarballs on Gulf beaches dwindle. There has been “significantly less oil” seen on the sea surface since July 15, when BP placed a temporary cap on the Macondo Well, according to the National Oceanic and Atmospheric Administration.
“Our scenarios are looking more and more like an upper bound,” Fleming said. “That being said, the concept of damage to owners’ value of residential properties along beaches that are at risk is still relevant.”