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Hunting for a house in a hurricane zone

Buying a home in a hurricane hot spot may not only be safer than you think — it may turn out to be a good investment.
/ Source: Business Week

Hurricanes are a terrifying and often devastating act of nature. Nevertheless, hurricane hot zones such as West Palm Beach, Key West, and the North Carolina coastline remain some of the most desirable real estate in the country while other storm-prone areas, including southwest and central Florida, are now glutted with more affordable homes because of falling real estate prices there.

But potential homebuyers, though lured by the beauty and warm weather of these coastal areas, may still wonder: Is it really safe to live here? Moreover, is it safe to own property? In August, 2005, Hurricane Katrina did little to assuage these fears as it tore through New Orleans and much of the Central Gulf Coast, killing more than 1,800 people and causing more than $81.2 billion in damage. But surprisingly, home prices in the area bounced back quickly as developers took advantage of the federal and state aid that became available for reconstruction.

Fickle home values
Between 2005 and 2006, the median price of homes sold in the New Orleans area jumped from $159,200 to $173,100, according to the National Association of Realtors (NAR). Now the region appears to be undergoing a price correction due to the post-Katrina run-up. The median price of homes sold in the second quarter of 2007 was $166,000 — 6.7 percent lower than the median price a year earlier.

The Central Gulf Coast region, which includes New Orleans, Biloxi, Miss., and Mobile, Ala., is the ninth-worst area for hurricanes in the U.S., according to the researchers at Sperling's BestPlaces, a Portland (Ore.)-based company led by Bert Sperling. Southeast Florida, including Miami, Fort Lauderdale, and West Palm Beach, is listed on Sperling's list as the area most likely to be hit by a major hurricane. Seven of the top 10 regions are in Florida, the other three are the Outer Banks of North Carolina (No. 5), the Central Texas Gulf Coast (6), and the South Texas Gulf Coast (10). Sperling's firm analyzed tracks of tropical storms over the past 100 years to come up with the ranking.

Enduring appeal
Despite the scary statistics, the likeliness of a hurricane hitting will not deter future buyers, says Sperling. "Regarding natural disasters like hurricanes, people have a short memory," he says. "Oceanfront property will always be very desirable and it continues to sell at a premium. It will take a steady battering by hurricanes for two or three years before homeowners decide that the odds and consequences of a direct hit by a major storm are too great."

And for people with strong roots in the regions, leaving is often not an option. Miriam Wismar, a 56-year-old teacher and New Orleans native, says she has dealt with hurricanes all of her life, but could not live anywhere else. "We would never leave New Orleans," she says. We've been here forever and we're very steeped in the culture. We really have the water in our veins."

Wismar's home is on high ground in the Gentilly section of the city, so the damage to it from Katrina was limited. In fact, the money she received from "The Road Home", a federal government-sponsored program that offers homeowners grants for uninsured hurricane damage, allowed her to add value to her home. Other homes that were damaged only slightly could be potential fixer-uppers, she predicts, especially now that prices have taken a dip in the area. "I think you can get good bargains here now," says Wismar. "As the city comes back, the real estate is going to go up."

Insurance hits harder
While hurricanes themselves don't seem to keep buyers out of certain regions, higher insurance payments sure can. "Anecdotally speaking, our realtors say that when buyers are considering a home, hurricanes are not really a fear but the insurance is," says NAR senior economist Lawrence Yun. Insurance companies in Florida raised their premiums dramatically after the Atlantic hurricane seasons in 2004 and 2005 were worse than average and included such Category 4 and 5 monster storms as Wilma, Charley, Frances, Ivan, Rita, and Katrina. Yun estimates that higher insurance prices drove home prices in Florida down by an average of $20,000 since 2005.

High insurance premiums coupled with steep home prices during Florida's housing boom have prompted some retirees to migrate northward to such places as the Carolinas. Now, home price appreciation is slowing in the southeastern Florida, and home prices are falling on the West and Central Atlantic coasts. "More than hurricanes, the storm known as the housing bubble is having a much bigger impact on the Florida's housing prices," says Sperling.

Homebuyers could start to look for bargains in the Sunshine State soon. "Insurance costs may trend down somewhat, and if that's the case, then there will be no further depression on home prices," says Yun. "If [costs] were to decline, buyers would be in an advantageous position."

Getting ready for the big one
Obviously, if you do decide to move to a hurricane hot spot, it's important to make sure you're prepared. Scientists at the National Oceanic & Atmospheric Administration's Climate Prediction Center are predicting an 85 percent chance of an above-normal 2007 Atlantic hurricane season, which runs from June through November and peaks from August to October.

Here are a few hurricane preparedness tips from Sperling's BestPlaces:

  1. Contact your insurance agent to determine the kind of insurance you can get and what it costs.
  2. Check flood hazard maps to see if the area is in danger of flooding. You can view these online at
  3. Make sure the house has been built to newer, more stringent building codes such as those in Miami-Dade County and South Florida. These new standards, which are designed to withstand 145 mph winds, were implemented in 1994 and continue to be refined.
  4. Have a "safe room" inside the house, which is a specially constructed space to provide a sanctuary during hurricanes or tornadoes.
  5. Learn the recommended evacuation routes.
  6. Keep a disaster supply kit on hand—with enough food and water for three to seven days, in addition to a radio, flashlight, batteries, cash, first-aid supplies, prescription drugs, clothing, tools, and fuel.