BP Oil Spill Now Impacting Real Estate Markets Beyond Gulf Coast Cities

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According to a new report released today by Clear Capital, 1-in-4 real estate professionals polled reported that the BP oil spill has had a negative effect on their local real estate markets, even in markets with no physical damage.

"The results of our survey reflect the overall uncertainty of where and by how much the oil spill is affecting individual local markets," said Dr. Alex Villacorta, Senior Statistician, Clear Capital. "While social stigma appears to be the largest factor influencing the slowdown in home buying activity, it is clear the effects of the spill are being felt well inland from the coast."

Report highlights include:

• 23.8 percent of respondents reported a negative impact on their market(s) due to the oil spill.
• More than 50 percent of those reporting a negative impact also reported a decrease in housing values by 5-15 percent.
• The number of sales has dropped dramatically year-over-year in many markets, even those that have not experienced a decrease in price or physical oil damage.
• Much of the impact reported is social stigma due to a high degree of uncertainty. The nature of the stigma can change quickly, making timely monitoring of market conditions critical.

"Many of these local markets in the Gulf have already experienced significant price declines over the last few years as well as a recent drop off in sales volume after the tax credit expiration. Additional downward pressure in the form of stigma and loss of employment will only serve to further dampen home price recovery," added Villacorta.



Impact not Limited to Physical Damage or the Coast

Physical property damage from the spill was reported by 3.2 percent of survey respondents. Southeastern Alabama and the Florida Panhandle reported the greatest concentration of physically affected areas. All of these areas estimated at least a 5-15 percent decrease in property values. Many respondents reported sales coming to a halt and inventory levels on the rise. In Mobile, Ala. the number of home sales fell 25 percent in June from one year ago. Other areas in Southeastern Alabama and along the Florida panhandle also reported decreased sales and property values as a result of the spill. Further east, as far as Panama City, Fla., inventories are on the rise as result of tar balls washing ashore. Similar to Mobile, Panama City has seen a 32.5 percent decline in sale volume in June compared to one year ago, reflecting the hesitation buyers have in locking themselves into a potentially affected area. This slowdown in sales is likely to dampen the recent price stabilization Panama City observed. Prior to the spill, the Panama City area had observed a 10.7 percent increase in sales for the month of April 2010 compared to the previous year.

More than just physical damage, social stigma--defined as the belief that an area has been negatively affected because of its proximity to the Gulf--is having a dramatic impact on housing markets. These impacts are capable of reaching inland or beyond the physical presence of oil. For example, when polled, real estate agents in St. Petersburg, Fla. said the water and beaches are clean. St. Petersburg is hundreds of miles from any oil and is not likely to experience any physical damage. Yet, area real estate professionals report that strong social stigma is having a negative impact on home sales.

Clear Capital's proprietary sales data validates the impact of the stigma. Leading up to the spill, homes sales by volume were very positive in St. Petersburg. March and April recorded strong increases rising 18.3 and 16.8 percent from the previous year, respectively. May also managed positive growth, but at 4 percent a downward trend was evident. By the end of June, the downward trend was sharply negative recording an 8.8 percent year-over-year reduction in sales. Further south, in Naples, Fla., one real estate office that usually receives five out-of-state customer inquiries per week, has received only one call every-other-week since the spill occurred.

Employment and its Impact on Housing

Markets inland from the coast, but whose industries rely heavily on the Gulf are also reporting a slowdown in real estate activity. Areas surrounding New Orleans, La. and Houston, Texas attribute negative pressure on housing markets to employment, rather than stigma.

Outside New Orleans, counties like Jefferson and St. Tammany are reporting layoffs or potential layoffs in the oil and seafood industries. There is also a potential for companies to move out of the area, leaving buyers with the decision to move with them, or stay behind and face unemployment. These realities and concerns have contributed to a significant slowdown in home sales. In May, the greater New Orleans market saw a 12.7 percent decrease in the number of sales from 2009. June declines were even more dramatic, down 37.9 percent from the previous year.

Houston, which is more than 30 miles inland from the Gulf Coast, is also reporting a slowdown in real estate. Although oil will never physically impact Houston, the uncertainty in the oil industry could continue to deteriorate real estate values and demand. In May 2009, Houston experienced an increase in unemployment of 2.9 percent from the previous year. In that same time period home prices fell 11.7 percent. Compare this to June 2010, unemployment held relatively steady year-over-year and home prices increased 13.4 percent from the previous year. If there is a significant uptick in unemployment due to layoffs in oil drilling and exploration, those gains could be in jeopardy.

While more than 75 percent of those polled reported no impact, a tremendous amount of uncertainty exists regarding future market direction. 41.4 percent of respondents in unaffected areas are unsure about what the future holds, and another 15.3 percent anticipate a decline in housing prices. Most respondents to the survey stopped short of predicting no impact, but instead expressed uncertainty about whether their market(s) will ultimately be affected. It is clear that the negative impacts go far beyond the physical presence of oil. Thus far, the impact on housing markets has been measurable in sharp decreases in volume from the previous year. The average sale price in many of these markets has remained steady, and in some cases has increased. It remains to be seen if prices can continue to resist the downward pressure being placed on them by deceasing sales and increasing inventories, or if they too will experience a similar decline as a result of the spill.

Changing Perception of the Spill
 
Given that the data reveals a huge impact in housing markets due to real or perceived influences, the changing nature of public sentiment regarding the spill will undoubtedly drive market changes. If the public gains confidence in the clean up and capping efforts, and if drilling moratoriums are lifted, the renewed confidence could lead to a surge in home buying activity. However, the opposite is true as well; if the spill and Gulf related employment worsen, the markets will continue to fall. In order to stay on top of the highly volatile situation in the Gulf States housing markets, Clear Capital is watching the sales and listing trends closely and will continue to survey its local real estate experts to gauge both perception and market changes.

See related REAL ESTATE CHANNEL postings:

• South Florida Beaches Expected to Dodge BP Oil Spill
• St. Joe Sues Halliburton; Blames Contractor for April 20 Gulf Oil Spill
• Travel Group Asks Treasury for $500 Million Marketing Check
• 56-Day BP Oil Spill Having Major Affect on Bankers, Developers and Hoteliers

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