“Reduced for Quick Sale!” reads Mike Montalbano’s Craigslist ad for the three-bedroom home he needs to sell before he can relocate for a new job.
The drywall is new, as are the appliances. The only problem? Location. Montalbano’s home is in Tom’s River, New Jersey, which was pummeled by last month’s Sandy megastorm.
“A lot of people are scared to come back to the water,” says Montalbano. “Back in the day, everybody wanted to come to the shore. Now it’s a mess down here.”
Montalbano was lucky. His home sits higher than others, and the storm waters hit his lawn but did not make it into his house.
That has not proved compelling to would-be buyers. His house is listed for $245,900, some $5,000 less than his original asking price. And even if he sells for that amount, he will lose about $40,000 on the property.
Several renters have inquired, but Montalbano fears that tenants could hurt his property. On the other hand, he does not think his odds of selling are very good. “The market will come back, but who knows when?” he says.
That is the “crystal ball” question that no one in Sandy-affected areas such as the New Jersey shore, Staten Island, New York and New York City’s Rockaway Peninsula can answer.
But there are a few things real estate agents can say with confidence.
First, the rental market in these areas is set to explode, thanks to a combination of displaced homeowners and contractors needing temporary housing.
Second, currently scheduled closings will be held up as buyers try to renegotiate and banks require new inspections and appraisals.
And third, investors looking for fire sales will come sniffing around.
“I’ve had people calling me saying, ‘I’m interested in oceanfront, and I’m ready to buy it now for $500,000,’” says Robin Shapiro, whose real estate business in Neponsit, New York, on the Rockaway Peninsula bears her name. “That’s not going to happen. Last month a property in Neponsit sold for $5 million. No one is dumping these oceanfront properties.”
History might prove her right. In South Carolina, where the barrier islands were trounced by Hurricane Hugo in 1989, home values rose sharply in the years immediately following and have been on an upward trajectory ever since.
A Zillow.com analysis shows home prices along the South Carolina coast rose 2.3 percent over the last 10 years, twice the rate of inland properties in the state.
Michael Scarafile, president of Carolina One Real Estate in North Charleston, South Carolina, remembers how Hugo led to an influx of properties on the market – and hordes of investors.
“Immediately afterward, you had opportunistic people taking advantage of people who said, ‘I’m done; I’m selling the house as is,’” Scarafile says.
Those who did not sell brought in a kind of post-Hugo renaissance.
Old bungalows that were completely destroyed or condemned gave way to new construction of high-end homes that could better withstand the next storm. The bridge to the barrier Isle of Palms was washed out by Hugo and replaced by a stronger structure that could handle more traffic. Palm trees replaced power lines, which were placed underground. And everyone was putting in new kitchens and new roofs, which revitalized the existing housing stock.
“Over the next year or two, the islands really had a new birth,” says Scarafile. “Memories are short. And now here we are, 23 years later, and we’ve never had anything close to Hugo.”
Scarafile points to his parents’ home as proof that even a storm-battered property can be a good investment. They purchased a waterfront lot in Isle of Palms in 1989 for $190,000 and built a $400,000 home on it. Then Hugo hit, ripping the deck from its supports, damaging the roof, breaking windows and driving drywall-damaging rain into the house. But with repairs, that same property sold in 2006 for $2.4 million.
Realtors in Sandy-affected regions can only hope to repeat Charleston’s story. For now, the mood is anxious and uncertain, and anyone looking to make a tidy profit in storm-damaged real estate is taking a risk.
Mortgages could be tough to get on homes that need work. Coastal properties can be magnets for hurricanes. Insurance rates often go up after a storm, and some insurers refuse to write policies in storm-threatened areas.
“From a real estate point of view, this will be devastating,” says Jon Salmon, president of Salmon Real Estate in Staten Island, where homes were flooded and blown off their foundations by Hurricane Sandy. “This area will be stigmatized for years.”
Sales that were set to close are now on hold because hurricane-related damage can void the contract, or the buyer, suddenly gun-shy, might walk away, Salmon says.
DISRUPTIONS AND DEALS
In the short term, real estate pros are moving from being selling agents to leasing agents, as the focus has moved to finding temporary homes for displaced families.
“Every day I get a call from somebody needing a place temporarily until they get the insurance money and can start rebuilding,” says Jim Flanagan, broker of record with Coldwell Banker Flanagan Realty in Tom’s River. “When the money starts coming in, I’m expecting a real estate boom.”
People might realize it is cheaper to buy a foreclosed home than to rebuild their own. “Sandy is actually going to bring us into a housing recovery in Monmouth and Ocean counties because she might wash out foreclosure inventory,” Flanagan says.
While Sandy hit the coast hardest, many inland properties also were affected, and they do not retain their value as well as houses near the water, according to Zillow.
Jessica Oliveras-Yu’s home in Sayreville, New Jersey, is more than 5 miles from the Atlantic coast, but storms – most recently Sandy – have brought flood waters to her finished basement for three years straight.
“These are supposed to be 100-year storms, but we’ve flooded three times in three years,” says Oliveras-Yu. The latest flooding was worst of all, filling not just her basement but also 3 feet on the main floor of her ranch-style home.
“Right now I’m in limbo,” says Oliveras-Yu, who has not been able to return home since the storm. “We’re waiting to see what the insurance will give me.”
She hopes to collect $250,000 – the limit of her homeowners’ policy. If she gets that, she plans to give the mortgage company the full amount and walk away. “We would still owe $50,000 on the mortgage, but we’ll take the loss,” she says.
If the real estate pros are right, it will not take long before that becomes somebody else’s gain.