Jersey Shore vacation homes' lure to homebuyers seen surviving Sandy
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Danea Kelly made her first shopping trip for a New Jersey shore vacation home on the Saturday before Hurricane Sandy made landfall. It won't be her last.
While Kelly, 41, decided she no longer wants property directly on the ocean, the storm may open up new opportunities.
"You take your chances anytime you get involved with real estate," said Kelly, who is house-hunting with her brother in North Wildwood, which dodged the worst of the Oct. 29 storm that tore apart the boardwalk in Atlantic City, 40 miles (65 kilometers) up the coast. "We may now have less competition from other buyers and it might steer some people who have lived down there a long time, who may decide, 'It's time for me to sell.'"
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Real estate markets on the Jersey Shore will suffer in the wake of Sandy, which inflicted as much as $50 billion of business and property losses and caused at least 100 deaths in the U.S. In the hardest-hit communities, rebuilding of bridges, roads, dunes and homes will take months or even years. Home construction and insurance costs will probably rise.
While it will take time for buyers to regain confidence after the storm and last year's Hurricane Irene exposed the vulnerabilities of oceanfront property, they will return, as they did to storm-wracked beaches in Florida, North Carolina and Texas, said Lawrence Yun, chief economist for the National Association of Realtors.
"The allure of having an oceanfront property is just too great," Yun said in a telephone interview from Washington. "People recognize that there are bad natural-disaster events and they just cross their fingers and hope it doesn't happen to them."
When house-hunters come back, they'll compete for a reduced supply of undamaged homes with higher asking prices, according to Yun. Rebuilt properties will feature costly upgrades such as sturdier roofs and wind-resistant windows, which also may push up resale prices.
Getting insurance -- and possible increases in premiums or deductibles -- may be the biggest challenge for buyers because lenders won't issue mortgages on uninsured properties, Yun said.
"Even if insurance rises 10 or 20 percent, I don't think the premiums will stop people from moving to the coast," said Tom Heist, an independent insurance broker in Ocean City, NJ. "It has always cost more to live at the coast. I believe that people understand the value proposition and are willing to pay for it."
Insurance rates on beach property have risen already as actuaries factored recent weather patterns, which have become more severe, into their risk calculations, according to Robert Hartwig, president and economist at the Insurance Information Institute, a New York-based trade group.
"The experience of Sandy and Irene last year only reinforced why the insurance costs are increasing," he said.
The Federal Emergency Management Agency, which insures damage from the flooding responsible for most of Sandy's property losses, limits coverage to $250,000 per dwelling and an additional $100,000 for content replacement. Mansions wiped out by the storm surge in Mantoloking, a coastal resort town north of Atlantic City, will cost hundreds of thousands more to replace.
John and Amy Hansell spent much of their life savings last year to buy a vacation home in Normandy Beach, a community that's been off limits since Sandy struck.
"We had a lifelong dream of having an oceanfront house," said John Hansell, 52, editor and publisher of Whisky Advocate magazine. "Great timing, right?"
The four-bedroom house with cedar siding and knotty pine interior walls was featured in a 2008 issue of Coastal Living magazine and would cost more than $500,000 to completely rebuild, twice the maximum amount that flood insurance would cover, he said. An aerial video taken by the National Guard showed that much of the deck and possibly the home's north wall had washed away, Hansell said. Some neighboring houses were knocked off their foundations. Others were crushed.
"This house was our escape from all the stress and hassles of life and now it became part of it, unfortunately," he said.
Except for the maximum $350,000 for flood-related damage, FEMA doesn't offer disaster assistance for second-home owners, which means they are ineligible for money for temporary housing or income loss.
"If you own a home at the Shore that is your vacation residence, second residence, FEMA is not going to be of priority coverage for you," New Jersey Gov. Chris Christie said at a Nov. 6 press conference. "If it's your primary residence, they do help you. If it's not, they don't."
Residences accounted for about 55 percent of the insured property damaged by Sandy, according to Eqecat Inc., a provider of catastrophic risk models, which estimated total economic losses of as much as $50 billion. About 34 percent of the property losses occurred in New York, 30 percent in New Jersey, 20 percent in Pennsylvania and the remainder in other states, Eqecat estimated Nov. 1.
About 284,000 residences with a total value of $88 billion were in the storm's path, according to an Oct. 29 estimate by CoreLogic Inc., a real estate information service based in Irvine, Calif. That included $4.81 billion worth of homes in the Atlantic City area and $3.44 billion in the Ocean City area, near the southern end of the 127-mile-long Jersey Shore.
Another storm like Sandy or Irene may delay or discourage a real estate rebound on the Jersey Shore, according to Mark Zandi, chief economist for Moody's Analytics Inc.
"However, if there are no other debilitating storms over the next couple of years, then I think prices will recover as buyers grow more aggressive and supply is limited, given the stiffer building codes that will be enacted," Zandi said in an e-mail. "Of course, if there are more storms, real estate values will continue to languish."
The Hamptons, the retreat for financiers and celebrities on Long Island's eastern end, may have "a pause" in home sales, a side effect of Sandy's flooding of Manhattan, according to Michael Daly, a broker with Sotheby's International Realty in the Hamptons village of Sag Harbor. Almost half of buyers in the beach towns are from the New York City borough, he said.
Sandy eroded dunes, knocked homes off their foundations and washed over roads in the Hamptons, said Len Bernard, budget director of the town of East Hampton, which includes the village of East Hampton and the hamlets of Amagansett, Montauk, Springs and Wainscott.
Sales may pick up ultimately, as home seekers search for opportunistic deals and as owners of low-lying property near waterways decide to put their homes on the market, Daly said. Homeowners who live away from the beach may actually see a pop in demand for their properties, he said.
"It's going to create a second thought for a lot of people," Daly said of the storm damage. "However, once that second thinking is over, it may spark the market." Construction costs rose about 20 percent in southern Florida after new building codes were imposed following 1992's Hurricane Andrew, said Ron Shuffield, president of Esslinger Wooten Maxwell Inc. in Coral Gables, Florida. The brokerage's sales jumped 67 percent in 1993 as homeowners scrambled to purchase existing homes to replace storm-damaged properties, he said.
New requirements included storm-resistant windows, stronger roof trusses and pilings to elevate living spaces. The new and rebuilt homes were usually bigger than pre-Andrew houses, with upgraded kitchens and bathrooms that added to price tags, Shuffield said.
"The values went up because the supply was low and new construction improved the homes," he said.
Bargain Hunters In good economic times, it takes at least a year for housing demand to recover after a storm, said Scott Leggat, vice president of Outer Beaches Realty in Hatteras Island, North Carolina, where 2003's Hurricane Isabel led to more than $400 million in insurance settlements.
"Then the bargain hunters will come and create activity," he said in a telephone interview from Hatteras, which has about 3,000 rental homes and a year-round population of 4,300. "Within about 12 months, you'll find activity has returned to a natural level." In the last few years, foreclosures on Hatteras have risen as property owners who lost jobs or income during the recession defaulted on their mortgages, he said.
"They're going to let the vacation home go first," he said. "We've had an inordinate number of foreclosures, and that's driven the market down." The destruction on the Jersey Shore arrives in a state already facing the second-highest rate of homes in the foreclosure pipeline after Florida, according to CoreLogic. New Jersey's unemployment rate was 9.8 percent in September, compared with the 7.8 percent U.S. average for the month, according to the Bureau of Labor Statistics.
On the Gulf of Mexico beaches near Houston, home-resale prices fell about 20 percent in 2009, the year after Hurricane Ike hit, a drop attributable as much to the U.S. recession as the storm, said Andrea Sunseri, a sales agent with Sand 'N Sea Properties in Galveston, Texas. Some investors bought damaged homes after Ike at half of the pre-storm price, she said, allowing the previous owners to pocket insurance money while the new owners restored the houses as rentals.
For the peak months of June through August, beachfront homes in Galveston now rent for $3,000 to $8,000 a week -- at least as much as pre-Ike -- because the energy industry has revitalized the Texas economy and properties were rebuilt with such amenities as granite-countertop kitchens, she said.
"We're getting more per house than four years ago," Sunseri said.
On the Jersey Shore, some sellers of homes that escaped storm damage are already increasing their asking prices, said Joy Luedtke, a broker on Long Beach Island. Owners of at least five of her 30 current listings discussed upward revisions since Sandy, she said. Among them is the owner of an eight-bedroom estate known as the White House, who proposed raising his price by $5 million to $19,999,000, said Luedtke, owner of Joy Luedtke Real Estate LLC.
"It's got a bullet-proof dune," she said of the property, which is in the community of Loveladies.
"We are very fortunate compared with other barrier islands, because of our high ground," Luedtke said in a telephone interview from Barnegat Light, on the northern tip of Long Beach Island, where she rode out Sandy. "If anything, we've increased in value."
Farther down the coast, Joe Scrocca, an agent with Weichert Realtors Coastal in Wildwood, is working with Danea Kelly, the Sicklerville, N.J., resident searching for a vacation home. Demand for Jersey Shore property may slow temporarily, Scrocca said, "but time tends to heal all wounds."