The devastation from Hurricane Harvey is widespread and disheartening. However, the outpouring of aid and the community spirit that have arisen in the face of the tragedy are inspiring, and they seem to be born of the famous, independent, hardscrabble Texan mindset.
As I ponder ways this calamity will play out in the financial markets, I see plenty of silver linings in the storm clouds. I started with the most obvious targets, such as insurers like Allstate, and their stocks have barely flinched. Surely this event will also benefit home improvement stores, such as Home Depot and Lowes, at least on a regional level.
The credit ratings of municipalities in the hardest-hit regions may play out more gradually, though I don’t anticipate long-lasting devastation here, either. The municipal market has endured many similar hits before, and it has proven its buoyancy each time. Galveston municipal bond prices hit the skids after Ike, but they have rebounded nicely. This storm likely won’t leave areas devastated for long, and because homes with mortgages almost always require flood insurance, a rebound is mostly a matter of when and not if.
Already blighted areas are likely to see acceleration in redevelopment, since those areas often contain structures that have outlived their useful life. This will free up property for fresh development, energizing property tax rolls and spurring business formation. While it pains me to consider what people in these areas will endure as a result of Harvey, I have faith that that Texan mindset and the aid pouring in from across the country will help see them through.
The most direct and lasting response will likely be an immediate increase in residential rental rates. I have seen estimates of numbers of affected homes to be more than 100,000. Where will those displaced people live while they rebuild—if they can afford to rebuild? There are not enough vacant apartments to accommodate that sudden need, and I can envision paths to a doubling of rental rates, at least in the short run. It will be imperative that the battered areas and surrounding communities focus on financially accessible housing for displaced residents as they begin to recover from the storm.
These types of events are agonizing, terrifying, and dangerous, but they are part of living near the coast. This will change the face of Houston going forward, but in the words of Monty Python, "It's only a flesh wound.” We'll be back, better and stronger than ever.