QUESTION: Are some choosing to recover their homes making a huge financial mistake? Let’s Do Some Math!
Does it make sense to have $220,000 invested in a home only worth $165,000 when recovered?
Yes, some homeowners did walk away and are not recovering their homes. And, what I’m seeing almost two months after the flood is rental property owners walking away as well.
NOTE: I’m a positive, upbeat person most of the time. I strive daily to emphasize the positive in life and in people. However, sometimes as a real estate professional, we must kick pollyanna to the curb and be brutally honest and real with consumers, homeowners and future homeowners. Sometimes there’s too much cheer leading, too much positive in real estate when it comes to YOUR MONEY! I saw far too much cheer leading by developers and Realtors right up to the over the cliff meltdown of 2007-2011 when some buyers and investors lost their shirts and then some (those newly renovated Baton Rouge Downtown Condos sold in the $119,000 range after Katrina now selling in the $60,000’s). Earning and maintaining the Public’s Trust is a long-term responsibility. Yes, some subdivisions are recovering nicely….and some just are not. This commentary below is for those subdivisions not recovering much at all. And Yes, I did flood losing home, home contents, my home office and three vehicles. Recovery is not at all easy, BUT has been made easier by so many kind and compassionate people.
Right after the flood, I became worried about a “Stagnation” for neighborhoods not in flood zone AE where homeowners didn’t have flood insurance. I then began to read “Residential Remodel” section of The Advocate to discover just how much recovery of just the home could cost and was frozen by the sheer cost to each home (including home, contents and vehicles).
The Advocate: Flooding, then stagnation: Baton Rouge area home sales see steep drop – by Timothy Boone
Sure, home sales are down, which was to be expected and it hurts all of our incomes. It’s the steep cost to rebuild required of homeowners without flood insurance money, nature’s sucker punch thousands can’t afford to pay for, not including cost for contents, clothes and vehicle replacement. Buying 3 vehicles and writing checks for 3 large down payments isn’t fun when there’s a house recovery and contents to also buy.
QUESTION: Are some choosing to recover making a financial mistake?
Why do I ask?
Yesterday, I was performing a disaster inspection for a Lender on a street with 14 homes on it, a street NOT in a flood zone but all 14 homes flooded. All homes were gutted after flood, BUT almost 2 months after the flood, only 6 of the 14 were being rebuilt at a cost of at least $30,000 to $50,000 each out of their own back pocket, not via insurance money. On surrounding streets in this subdivision, it’s the same story. Just how bad will the 10’s of homes not even being recovered, still with trash piles in front yards, impact the value of the 6 eventual finished homes? How long will these homes remain gutted and vacant? No, it doesn’t appear real estate investors are as active as perceived.
STIGNMA…are recovering homeowners hurting themselves?
What if you paid $170,000 for your home not in a flood zone, it did flood and after flood is worth less just because it did flood, it now has a stigma? Say you easily spend $50,000 to rebuild, not including contents. You now have $220,000 invested in a home that with a stigma is worth say, $165,000? See where I’m going here?
No, there are not enough post-flood home sales to measure any type of resulting stigma, at least not yet.
The above is what I mean by “Stagation” and its impact on future home values and on the future of Greater Baton Rouge real estate.
It Appears Some Rental Property Owners Are Walking Away Too!
Worse yet and what ‘s not being recognized yet is the impact of rentals not being recovered. At least 4 of the 14 homes I mentioned were rentals, they were gutted and remain vacant with no recovery activity. FEMA doesn’t assist rental owners and banks are leery of lending on properties they know will be upside down on. I’m seeing some real estate investors walking away as well.
No, I know this is not the message of despair leaders in real estate should be delivering, however, what I’m seeing over time is, in some subdivisions, this is the reality of the situation. Housing markets I see struggling are in North Baton Rouge 70805, Baker, Central (in general), east end of Sherwood Forest 70815 by Flannery to east Baton Rouge Parish line (70816 and 70819), Denham Springs (devastated), Livingston Parish and Saint Amant in Ascension Parish.
ANOTHER CONCERN IS: Former Owner Occupied Subdivisions Being Turned Into Rentals.
ALSO, what if pre-flood, the percentage of rentals in your subdivision was say just 10% and after full recovery, 40% of homes turned into rental houses? I believe this would hurt home values in that subdivision or at least cause them to appreciate more slowly over time.
Yes, thousands are stuck in a quagmire here. Am I saying just walk away? Not exactly, just weigh all options! Certainly you don’t want to walk away and face a major credit rating hit with a foreclosure or short sale and not be able to buy for several years. Rent is SKY HIGH, insane. But, you also don’t want to have invested $50,000 to $70,000 more than your home is worth. How many decades would it take for your home value to increase just to break even with your investment, assuming your home value would increase over time in such a devastated neighborhood or subdivision? Perhaps some could rebuild, turn it into a rental and buy another home NOT in a flood zone, in a market known for appreciation over time. ARE THERE ANY OTHER OPTIONS FOR FLOODED HOMEOWNERS OTHERS COULD SHARE?