Will Ian cut Florida’s Gulf Coast real estate boom short?

Hurricanes have always posed an inevitable threat to Florida. But the risk hasn’t deterred the droves of people who have flocked to the state since the start of the pandemic.

From Tampa to Naples, the state’s Gulf Coast has become a national real estate hot spot with its alluring beaches and relative affordability compared to larger cities. Out of the top 10 fastest-growing housing markets this year, half are on Florida’s west coast with Fort Myers holding the top spot, according to federal data.

But after seeing Hurricane Ian reduce entire neighborhoods to rubble with devastating storm surge and 155 mph winds, will the newcomers stay? Experts told the Tampa Bay Times they are waiting to see if the storm could put an end to the Gulf Coast’s growth spurt.

“For a lot of the people, whether they’re remote workers looking at the west coast of Florida as an affordability move or looking for another type of lifestyle or climate, this just has to change that calculus,” said Thomas LaSalvia, a senior economist at Moody’s Analytics.

He pointed to a psychological effect called recency bias, when people give greater weight to major events after they happened. This could temporarily dampen in-migration to the region while the storm is fresh in people’s minds.

For people considering a move, the storm may serve as the final tipping point.

Kira Smith, 54, has lived in Clearwater for more than 20 years and said she has grown increasingly frustrated by Florida politics. Before the storm, she thought about leaving to be closer to family, but now she and her husband are having more serious conversations about moving.

“I’ve seen pictures and coverage from what happened just to the south of us and know that it could have happened here quite as easily,” said Smith, a remote researcher. With climate change, she said Hurricane Ian was a sign that things will get worse.

While some may be reconsidering Florida out of fear for their safety, Peter Rex, a real estate investor who has bought and sold apartments along the Gulf Coast, said others are more focused on the financial implications of the storm.

“Insurance costs are going to go way up and they were already high anyway,” he said. From an investor’s standpoint, “that’s going to decrease your net operating income.”

Even before Ian, the real estate market had already begun to cool. Rex said that rising inflation and higher mortgage rates have made buying property less profitable for investors and less affordable for average people.

Fort Myers and Tampa were the 3rd and 9th most overvalued housing markets respectively, with homes selling 62% and 58% above their historical trends, according to a study from Florida Atlantic University. While housing demand may dip immediately after the storm, FAU researchers said Ian’s destruction will put construction behind and could further raise rents near landfall areas over the years.

“In the long run, people still will want to live in Florida, increasing demand dramatically,” said FAU economist Ken H. Johnson.

Despite the challenges the Gulf Coast faces, Budge Huskey, President and CEO of Premier Sotheby’s International Realty in Naples, said he is confident the region will bounce back just as it did after Hurricane Charley in 2004 and Irma in 2017.

Data from Redfin shows that in September 2017, immediately following Irma, the number of homes sold in the Naples metro area decreased 33% year over year. But by October, the market stabilized and sales were on par with the previous year.

In Tampa Bay, housing prices have nearly doubled since Irma, according to data from Zillow.

“Any time you elect to live along the Florida coast, you know you are taking on a risk,” Huskey said, adding that the most risk-averse buyers probably weren’t the ones moving here in the first place.

Some investors may even use the storm as a chance to gain a foothold in the market said Milton Bernal, who works for real estate firm New Western in their Fort Myers office.

“This becomes a good opportunity for both parties, where the seller can sell their distressed property for a fair value and investors can come in and help revitalize.”

Hurricanes have played a part in Florida’s volatile housing market throughout history, most notably during the 1920s land boom when two major storms marked the era’s rise and fall.

The last time a major hurricane made landfall on Tampa Bay was in 1921. Tampa historian Rodney Kite-Powell said Tampa’s business leaders were quick to say the storm was just a speed bump. Five years later, Tampa General Hospital was built on Davis Islands. It still is the only Level 1 trauma center in the area and in a high-risk flooding zone. Despite a storm surge of 11 feet, investment into Florida kept pouring in.

It wasn’t until a hurricane slammed into Miami in 1926 that people started to realize the prohibitively high cost of investing in Florida. At the time, residents were already experiencing supply chain issues from a ship crash in the Biscayne Bay. The storm sped up the bust already underway, Kite-Powell said.

“There were those who were already kind of concerned about the unsustainability of the land boom,” Kite-Powell said. “Just like we’re seeing now with booms and busts. And so those naysayers that already existed were beginning to be proven right a little bit.”

But with recency bias, the effect can be temporary. People can be quick to forget the stress that comes with major storms with the passage of time.

Though Huskey said the market may cool slightly over the next couple of months, “it really is just a matter of time before things return to normal.”