Mortgage-default rates spike after natural disasters
The fury of Mother Nature can wreak havoc on a neighborhood. Wildfires, hurricanes, volcanoes and earthquakes
can leave significant destruction in their wake, as many communities in the U. S. have witnessed firsthand.
This year the Kilauea eruption in Hawaii erased 716 homes, and the Carr wildfire near Redding, California, destroyed
1,079 homes and severely damaged an additional 190. The damage or destruction of homes and commercial
buildings, and displacement of families
and businesses, has major impacts on
property and mortgage markets.
The disruption of a family’s regular
flow of income and mortgage or rent
payments, as well as substantial loss in
property value, can trigger a mortgage
default. It affects homeowners who
have seen their homes destroyed, workers who no longer have a job to go to,
and landlords who find that their rental
income has evaporated.
Losses are even greater for those homeowners who were underinsured, perhaps
choosing to avoid flood-insurance premiums for what they had considered an unlikely event. In the ensuing months after
2017’s trio of hurricanes — Harvey, Irma,
and Maria — serious delinquency rates
on home mortgages tripled in the Houston and Cape Coral, Florida, metro areas
and quadrupled in San Juan, Puerto Rico.
The Tubbs wildfire caused serious delinquency rates to spike by 50 percent in the Santa Rosa, California, area.
While payment-forbearance programs provided by the Federal Housing Administration, lenders and secondary-market investors can lessen the financial stress, local default rates still rise. CoreLogic estimated that residential-property flood damage from Hurricane Harvey along the Texas coast resulted in at least $25 billion in losses,
much of it involving homes that had no flood insurance.
The significant loss of housing stock also impacts the cost of shelter in affected neighborhoods, especially those
that already had a severe shortage of homes. The 2017 Tubbs fire destroyed more than 3,200 homes, or about
2 percent of the single-family stock in Sonoma County, California.
This summer’s Carr wildfire also destroyed about 2 percent of the single-family home stock in Redding. For some
affected neighborhoods, the loss was close to 100 percent. Families that were displaced by the fire add to the
demand for shelter in the metro area.
The increase in demand, coupled with the reduction in housing stock, translates into upward pressure on prices
and rents for undamaged homes. CoreLogic’s Single-Family Rent Index and Rental Trends data have documented
In Santa Rosa, single-family home rents have risen at a double-digit pace after the Tubbs fire. Annual rent growth
in the Houston market, which had been declining before Harvey, accelerated to 10 percent annual growth as of
this past spring. And in the Cape Coral metro area, annual rent growth grew from 1.5 percent before Hurricane
Irma to 11 percent by May 2018.
Based on what we have seen after prior natural disasters, communities affected this year by wildfires,
hurricanes, mudslides and volcanic eruptions will likely experience an increase in mortgage-default rates
and shelter costs. n
Frank E. Nothaft
Frank E. Nothaft is chief economist
for CoreLogic, America’s largest
provider of advanced property and
ownership information, analytics
and data-enabled services. He leads
the economics team responsible for
analysis, commentary and forecasting trends in global real estate,
insurance and mortgage markets.
Before joining CoreLogic, Nothaft
served as chief economist for
Freddie Mac. Prior to Freddie Mac,
he was an economist with the Board
of Governors of the Federal Reserve
System and served as assistant to
Fed Governor Henry C. Wallich. Visit
CoreLogic at www.corelogic.com.
Source: CoreLogic *Percentage of loans that were 90 or more days delinquent or in foreclosure
Cape Coral - Fort Myers, Fla. Houston - The Woodlands - Sugar Land, Texas
Santa Rosa, Calif. San Juan - Carolina - Caguas, Puerto Rico
Serious Mortgage Delinquency Rates After Natural Disasters*