Black Knight reports Hurricane Harvey could Lead to 300,000 new mortgage delinquencies. How does this compare to Katrina? And what about GDP?
Via Email from Black Knight
Hi Mish,
As we watch Hurricane Irma barreling through the Caribbean, on her way to Florida, Black Knight is releasing an updated and expanded analysis around the potential impact of Hurricane Harvey, which remains a very real and tragic situation.
- FEMA-designated disaster areas related to Hurricane Harvey are home to 1.18 million mortgaged properties
- Harvey-related disaster areas contain more than 2X as many mortgaged properties as those connected to Hurricane Katrina in 2005, carrying nearly 4X the unpaid principal balance
- Post-Katrina mortgage delinquencies in Louisiana and Mississippi FEMA-designated disaster areas soared 25 percentage points, peaking at over 34%
- A similar impact to Harvey-related disaster areas would see 300K borrowers missing at least one mortgage payment, and 160K becoming 90 or more days past due
- Total unpaid mortgage balances in Hurricane Harvey-related FEMA disaster areas: $179 billion
- Total unpaid mortgage balances in Hurricane Katrina-related FEMA disaster areas: $46 billion
This will be a long-term recovery. If the Harvey-related disaster areas follow the same trajectory as those hit by Katrina, within four months we could be looking at as many as 160,000 borrowers falling 90 or more days past due on their mortgages.”
Mitch Cohen
Sr. Vice President, Managing Director
MARTOPIA PUBLIC RELATIONS GROUP
Hurricane Harvey Ripple Effects
I did not see as many “broken window” fallacy arguments about a boost to GDP from Hurricane Harvey as I expected.
Instead, economists expect a hit to GDP and jobs in the third quarter. Then what?
Forecasting may not be easy. One has to differentiate between hurricane effects and a slowdown from natural causes.
Please consider How Hurricane Harvey Will Ripple Through the U.S. Economy.
Forecasters in The Wall Street Journal’s survey of economists expect the storm to reduce the pace of job gains by about 27,000 jobs a month in the third quarter on average, followed by little change in the fourth quarter and then a boost of 13,000 in the first quarter 2018, as many people find work rebuilding.
Economists also expect the growth rate of gross domestic product, the broadest measure of goods and services produced across the economy, will fall by about 0.3 percentage points in the third quarter, followed by no effect on the fourth quarter, and a 0.2-percentage-point boost in the first quarter of 2018.
Jobless Claims
Early evidence of the hurricane’s impact on the U.S. job market came Thursday, when the Labor Department reported the largest one-week jump in initial jobless claims since the aftermath of superstorm Sandy in November 2012. It is likely only the beginning of a spike in unemployment filings.
In the weeks after Hurricane Katrina in 2005 and Sandy in 2012, jobless claims were highest not during the week of the storm, but two weeks after. Many who were out of work from the hurricane waited until the storm had passed to file their claims.
Compared with the week of the storm, initial jobless claims rose 23% in the second week after superstorm Sandy and 30% in the second week after Hurricane Katrina.
“Irma’s right behind Harvey, so that could cause claims to spike again,” said Ryan Sweet, director of real-time economics at Moody’s Analytics.
Housing
Before the storm, Texas was on track for a 14% increase in housing starts this year, according to James Gaines, chief economist at the Real Estate Center at Texas A&M University.
In 2016, Houston alone accounted for about 4% of the nation’s permitted housing. Now builders wait to assess the market as construction sites dry out—and will compete for workers to rebuild and repair the city.
Household Wealth
Destruction of homes and businesses doesn’t show up in GDP figures, but it would show up in measures of household wealth. Many homeowners and businesses swamped by the storm didn’t carry flood insurance, meaning that a large share of the over $100 billion in estimated damage could reduce household wealth.
“With so many homeowners uninsured, this is more akin to a wipeout of assets such as one would expect from a stock-market crash,” said Constance Hunter, chief economist for KPMG, the accounting firm. “The effects are more negative and widespread.”
Ultimately, “the impact on individual lives will dwarf the economic dollar losses,” said Lynn Reaser, a former Bank of America economist who is now a professor at Point Loma Nazarene University in San Diego.
I am not making a GDP assessment yet. Hurricane Irma has not hit yet and there are two more hurricanes on the way.
I will say this setup looks damn ugly. Best wishes to all those affected.
Mike “Mish” Shedlock
America has not had a hurricane in 12 years.
I remember we used to have 14-14 hurricanes a SEASON!
With 2-3 of those being major and hitting the SE somewhere.
Houses in Florida used to be single story concrete block FOR A REASON.
In those very good and very quiet 12 years, America got lazy.
– A massive housing bubble building crap house in places that never should have a house
– Homeowner not keeping flood or homeowners insurance because “it is just throwing money away”
– Builders ignoring housing codes and best design practices as it “doesn’t matter” anymore
– Building houses on barrier islands…etc.
With 3% down-payment obama/Mel Watt mortgages now the standard, these people are going to WALK.
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I would walk too. If I owed 90%+ of what the house is worth, I would take whatever insurance money I could get, default, and go rent somewhere else for a few years until the credit hit cleared.
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Depending on the state, the mortgage company can come after all your assets, including salary. So if you have any significant assets, those would be lost too.
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Fortunately – or unfortunately – Texas is one of the friendliest States for protection from creditors. Generally, salary is not attachable except for child support and IRS (of course!).
I am NOT an attorney….but guess which hotel I spent last night INN……:-)
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Yes, Texas and Florida are both friendly States for debtors…
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What states allow the mortgage company to come after you?
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Just as the case with the two wards in New Orleans that were built on “reclaimed land” (mangrove fields that were covered with loose fill) — a lot of real estate developments in Florida are built on former mangrove fields, on top of former sand dunes, in swamps that were covered with fill. Barrier islands that were essentially off shore sand dunes were covered in cheap condos financed with cheap mortgage money handed out by neo-keynesian imbeciles.
In an effort to collect “free” property tax increases and use Bernanke/Yellen’s “free” mortgage money, a lot of municipalities ignored mother nature. Those mangrove fields and sand dunes were there for a reason, and knocking them down was never “free”.
Now the bill for all this socialist “free” stuff is coming due. Like EVERY other time in history, socialism’s “free sh!t” isn’t really free at all.
Those are the true ripple effects that our blog host is talking about. They aren’t ripple effects at all — they are the bills for all the supposedly “free sh!” coming due.
There is no free lunch; never was, never will be. If a fast talking con-man like Bernanke or Obama or Draghi or Bernie Sanders or the EU comes along telling you that you are entitled to get something for nothing, you had better understand the bill is going to arrive anyway. Especially if a politician says it won’t.
If FEMA’s performance after Katrina and Sandy are any indication, expect widespread fraud and embezzlement to permeate Houston and Florida. Contractors who can’t even spell “building code” much less read one are already gearing up to steal the $8 billion “free” money from Congress, and whatever they can extort out of insurance companies.
Plan on property insurance costs to skyrocket (or be canceled) to pay for all this “free” stuff.
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PS — most of the people who will “compete” for re-construction jobs are people who rarely (or never) swung a hammer before in their lives. They will receive “on the job training”, which is a fancy way of saying they will make their mistakes rebuilding YOUR house, and YOU will get the bill for those expenses (even if they are laundered through insurance premiums).
Just because a hurricane hit, does not mean thousands of people suddenly learn craftsman skills by osmosis. They are going to “learn” by cutting corners on the structure that houses your family and your children.
Why would anyone bother to learn trade skills when they can just collect welfare now, and make mistakes with your children’s safety later?
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Shortages of skilled construction workers will slow recovery efforts in Texas and Florida.
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Just get rid of FEMA and the EPA. And get rid of Federal flood insurance. Waste of money.
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Speaking of widespread fraud, Florida native Carl Hiassen wrote a very funny novel called “Stormy Weather”, which is set in the aftermath of Hurricane Andrew. It features a cast of grifters all pulling various schemes and scams during the rebuilding period after a hurricane.
It was written over 20 years ago, so you can see that Florida had a reputation for this kind of fraud even back then.
“The Florida in my novels is not as seedy as the real Florida. It’s hard to stay ahead of the curve. Every time I write a scene that I think is the sickest thing I have ever dreamed up, it is surpassed by something that happens in real life.”
Carl Hiaasen
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Like china gdp will NEVER again have a negative print (ever),the days of bad economic data is over,the stock market will NEVER be allowed to correct (ever).All economic and monetary policy will be “sanitized” and “adjusted” to follow the Gov’t narrative ie there will NEVER be an “official’recession (ever)the “gov’t’ will not allow it
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will trump relax border controls to let in skilled mexican day laborers to rebuild tx and fl?
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Have YOU ever hired a company that hires these “skilled” workers? The only thing they are skilled at is short cuts that coat the customer big money down the road. Try 4 nails per sheet of roofing plywood during a slightly windy day. Been there, sued them, never collected, they just go out of business and start a new company.
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Here is some of that broken window debate you wrote about. it is very important people understand that all economic growth is not equal. Quantity does not equal economic strength and who or how it is paid for does matter.
In some ways, much of the damage repair will slip into the category of the same “misdirected spending” that is driven by low-interest rates and Ponzi style financing. This creates an economy that is built on sand and prone to failure. The article below delves deeper into this subject.
http://brucewilds.blogspot.com/2017/08/economic-growth-does-not-equal-economic.html
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Thought I was smart by not having a mortgage: I have to rethink my values .
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We hear that eighty percent of those in the Houston area suffering losses from flood damage do not have insurance coverage to cover their loss. The pain may be particularly harsh on two groups that society has come to depend on, the small business owners and all those private landlords that create competition in the rental market.
Neither of these groups tend to be hoity-toity but are generally made up of hard working people that often have borrowed money to build a better future. And yes, these groups often fall into those who have passed on flood insurance because they felt it was too expensive. More on the problems they face in the article below.
http://brucewilds.blogspot.com/2017/09/uninsured-will-get-rude-awakening-post.html
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I’m looking at starting a small business. I’ve started up new products for my employer, including securing office space and hiring employees, so I thought I knew what was needed. I’m quickly getting an education as to just how much it costs to be your own boss.
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Well the auto industry is ggnna probably see 500k to 1 million units needed to replace what these 2 hurricanes have destroyed, pluss the used car industry will probably be defrauding their segment of the industry with mildew cars.
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Destructive disasters, such as hurricanes, do not add to GDP. Investing (like the Netherlands) in systems to better prepare for 1 in 8000 year events can be net positive to GDP.
“An ounce of prevention.”
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Half of New Orleans is below sea level. Royal Dutch Shell probably felt right at home locating their North American HQ there. Until, of course, they become acquainted with American style political corruption.
The entirety of Katrina rebuild contracts should have been awarded to Dutch civil engineering firms and then get the American riff-raff pols out of their way.
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Agreed.
The U.S. should go Dutch to avoid building another Houston
By Nathanael Johnson on Aug 31, 2017
“… Jeroen Aerts says America focuses mostly on flood insurance — futher proof we prioritize recovery over thinking about preventing floods or how best to cope with seeing more of them….”
…
“…Because Houston is so flat, there’s nowhere for draining stormwater to go, and even the best system will be overwhelmed unless people can also capture water on their own lots.
Here’s where even the Dutch look elsewhere for inspiration. Singapore requires builders to create water-retention basins when constructing new homes.
“You dig a hole for a retention basin,” van de Ven says. “And you can use the soil from that hole to build a hill so your house is on higher ground.”…”
https://grist.org/article/houston-was-built-to-flood-heres-how-to-avoid-building-future-houstons/
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I understand that Yellen is buying truck loads of buckets from Amazon. Washington has train loads of band-aids on order.
Bezos to become the richest human on earth. If he was gay, he would marry Harvey. Now I think he’s falling in love with Irma.
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1) Houston black market export is flourishing in the aftermath of hurricane Harvey.
Tow trucks are carrying damaged vehicles down south to the markets of Mexico,
Honduras, Guatemala and other southern locations. US flooded vehicle can end up in the middle east or Asian used cars markets.
2) Wealthy people from flood damage areas in Houston have to pay premium prices for RE
in high elevation areas and take a huge loss on their existing house in the infected areas.
3) The poor & middle class cannot relocate without insurance money or Fema.
4) The oil sector is already suffering from attrition even before hurricane Harvey.
Skilled people abandon this losing industry and a notorious flooded city, because there is no future in Houston,
5) The oil industry, suffering losses due to low oil prices, will take advantage
of the situation to consolidate, cut dividends & CAPEX, shrink payroll.
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There is quite a number of “Illegals” working the “black market” construction in Texas as there are in other states. No state does not have its share of undocumented construction workers. If one needs these construction workers because the union workers are far too expensive or the documented workers are too high, then you buy what labor one can afford. That is a simple fact of life. Doing without is not the best option. One of the problems with this approach will be the steep rise in black mold in the houses where this cheap labor has been used.
Well, what about building codes and inspections? If one is going to use cheap labor one may be tempted to bypass building permits and code compliance. On the other hand, Texas does allow the home owner to be his or hers own contractor and pull permits. The building department hates that because most individuals do not know the codes and the inspectors will be tearing their hair out. Either way, for those without the high wage work, the do it yourself or cheap labor is the only real avenue to recovery. These people will not be able to sell their distressed property and will not qualify to purchase new or used homes.
Then there is the problem of their vehicles. Expect to see a great many new clunkers on the road. They often owe too much and insurance may not pay. More black market work for those who can at least get the cars running. People will survive and deal with the big problems down the road. This recovery will not be neat and orderly. Some will lose their jobs because the business locations are shut down permanently. Some will need to move on to better prospects. Some will stay because moving is not an option. But one thing is sure, the black market construction workers will have an increase in work for years to come.
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Potential banking crisis originated in Houston & Florida.
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Rush Limbaugh was saying that Irma was a liberal hoax. Turns out he has tucked tail and has run out of the place now! He is rich and can afford to fly out. The bozos who believed him are stuck. Sad!
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This would be a great time to revise building codes to allow modern industrial assembly and design techniques in construction. Prefabricated panels, standardized steel buildings, smaller lower cost designs. Look at how a house is built today, constructed of individual non-standard hand made parts. Think of how much a car would cost if it was built that way.
Maybe for certain coastal areas make the design of the structures assuming evacuation of the residents during storms. Financing would assume rebuilding on a regular basis.
Like the native americans with houses constructed of bark and sticks. Get your fishing done during calm weather and run away inland when the storm comes. This allows the safe and cost effective use of coastal lands. If I had some coastal land my beach house would be a nice camping trailer. After a storm I would be sad my vacation home washed away but not bankrupt.
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Better yet, get rid of building codes, zoning/land use laws, and have builders compete on quality, like they do in non rackets.
Instead of focusing on banning competition, to ensure their prey is forced to pay $500K for $50K to construct, shoddily slapped together shacks, on account of artificially enforced scarcity.
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I dunno where you’re posting from, Alex, but you are making way too much sense under the circumstances.
Harvey and Irma have struck the US gulf coastal areas. That fact alone guarantees only the barest minimum of common sense will be tolerated in the ensuing recovery.
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Posting from higher ground now to the east of the hurricane path. If things shift back I’ll be waiting for my Federal handouts.
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I did not see as many “broken window” fallacy arguments about a boost to GDP from Hurricane Harvey as I expected.
Mish – they were just a little late in coming.
“Fed’s Dudley says hurricanes Harvey, Irma to give ‘unfortunate’ boost to U.S. economy” http://www.marketwatch.com/story/feds-dudley-says-hurricanes-harvey-irma-to-give-unfortunate-boost-to-us-economy-2017-09-08
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People like Dudley are so stupid they can’t see that the logical conclusion of their argument is if destruction creates wealth, then we should all be destroying everything we can lay our hands on.
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Correct this if I am wrong: When an insurance claim is filed on an automobile, that claim is listed on CARFAX, etc. So when you purchase a used car – and don’t use CARFAX, etc., you qualify as an idiot, to start with. If it’s claimed as being in a flood, then it SHOULD be on the CARFAX. Very hard for the average person to tell.
But – unless there is an insurance claim filed, it will NOT be on CARFAX.
Last month, my daughter bought a 2015 Honda Van from David McDavid Honda in Frisco, TX. They showed us the CARFAX. No problems listed. They did NOT tell us it had hail damage. Bought the white van on a bright sunny day – did not see the very small dents. Got it home – in the shade – and they became instantly visible. Took it back to the dealer with fire in my eye…….
They told me that since there had been no claim to insurance, the hail damage does NOT show up of CARFAX.
So…….buying a used car – ANYWHERE IN THE US – in the next few months….BEWARE !!! If the seller did not claim an insurance loss – it WILL NOT BE ON CARFAX…..and YOU won’t be able to tell by just looking……
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buying a used car is a risky proposition most of the time especially if it has over 30,000 miles on the odometer. and If you are buying a high mileage used car with 75,000 miles or over you qualify as an idiot and moron. The 10 year or 100,000 mile rule which ever comes first applies to most cars when you go over 100,000 miles repair costs REALLY start to escalate.. Note I am not even considering the effects of flood damage.
This is why you absolutely should buy new with the full warranty or do a 36 month lease where you don’t have to worry about high repair costs and where maintenance is usually covered.
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Nik: NO. You should NOT buy an extended warranty when you buy a new car. Why? Because that extended warranty WILL COVER NOTHING AT ALL UNTIL YOUR 3 yr/36K expires. Nothing.
My new ’17 Accord dealer wanted $2800 for the 7yr/100K extended warranty – but offered me their ‘special’ of only $1800 if I bot it now. I did. Big mistake. Got home – did some research online – found several places that sell the EXACT SAME WARRANTY for $1100. I called Honda Warranty and canceled it – and got my $1800 back. (30 or 60? day cancellation ).
Tried to buy the online warranty. Their salesman told me: “Do not buy this until your 3/36 Honda warranty is about to expire – then call me back. Price is the same. Why give me your money to hold for 3 yrs when I won’t be liable for ANYTHING until the Honda one expires?”
WHAAAAT? Never had a salesman tell me the truth like that. But it’s true. Get online and price out some for yourself. DO NOT BUY ONE ON YOUR NEW CAR FROM THE NEW CAR DEALER. It’s a absolute RIPOFF.
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Maximum sustained winds down to 150mph. Except for the Keys, Irma looks more and more like a dud.
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“The forecaster’s worst nightmare is: There’s a storm in the Gulf that’s 12 or 24 hours from landfall, and you go to bed at night, and it’s a tropical storm. Then you wake up the next day and it’s a Category 3. By then there’s just no time to get people out of harm’s way,” he said.
https://www.theatlantic.com/science/archive/2017/09/meteorologists-forecast-hurricanes/538995/
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Winds back up to 155. It will take a miracle for Irma to be a dud.
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Mortgage delinquencies up 33%, broken window fallacies down 33%.
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