Long-Term Impact of Katrina Seen on Housing, Note Experts

WASHINGTON, DC - As the full impact of Hurricane Katrina on the housing market becomes increasingly clear, the consensus among housing experts is that, while rebuilding will start eventually, the need for the foreseeable future will be to clean up and repair damage to structures that are still viable.

It is also clear, housing analysts agree, that the repair process will absorb much of the construction labor in and around the hurricane-ravaged Gulf Coast region, and that building materials prices will continue to be impacted.

"In the coming months, we expect to see a jump in prices for building materials, such as concrete and gypsum products. There will also likely be a rise in lumber and plywood prices," said Kermit Baker, chief economist for the American Institute of Architects (AIA).

However, those price hikes are not likely to be long-term, Baker added.

"I expect a negative impact on the materials we use, because they are shipped through New Orleans," noted Dick Titus, executive v.p. of the Kitchen Cabinet Manufacturers Association (KCMA). "We expect some price increases, as well."

"The industry will be affected in the same way as the economy, in terms of the impact on the cost of energy, or perhaps in the availability of certain products," added Ed Schukar, v.p./vendor relations for the Houston-TX-based Bath & Kitchen Buying Group (BKBG).

Other probable effects of the storm, according to housing analysts, include the following:

  • An increased demand for labor will coincide with an expected national slowdown in residential construction, allowing for skilled trade workers to commit to projects in the hurricane-ravaged regions.
  • Rising prices for petroleum-based construction products will compound the effects of dramatic increases in transportation costs.
  • Less than half the lost housing stock in Louisiana is expected to be rebuilt, due to a decreased population base in the region.

The National Association of Home Builders (NAHB) has estimated that some 275,000 homes were destroyed by Hurricane Katrina. While this implies increased demand for - and the construction of - new homes, past experience has shown that there is no massive surge in home building in areas impacted by natural disasters, an NAHB spokesman said.

"Replacing units destroyed by the storm will not begin for many months and will take place slowly," an association spokesman added.

According to the NAHB, the storm significantly impacted the supply of materials, as well as demand - a factor which led to a spike in lumber and panel prices in September. In addition, imports of building materials will be disrupted by the damage to port facilities.

The materials that will be most affected, NAHB economists said, include roofing and wood panels (plywood and OSB). Demand for other materials, such as concrete, is likely to decline initially, as planned projects are cancelled or delayed during the recovery period.

The National Association of Realtors (NAR) is forecasting that Katrina will not only drive up the cost of construction materials and labor, but it will also boost demand for housing, creating an even tighter supply - which will contribute to a further increase in prices. As building activity picks up in the hurricane-affected area, housing inventory will remain tight nationwide, meaning demand will continue to outstrip supply in most areas, the association said.

Another likely result of Katrina is that stubbornly low long-term mortgage rates will inch up even more slowly than previously predicted, the NAR concluded.