Black Knight reports Hurricane Harvey could Lead to 300,000 new mortgage delinquencies. How does this compare to Katrina? And what about GDP?

Via Email from Black Knight

Hi Mish,

As we watch Hurricane Irma barreling through the Caribbean, on her way to Florida, Black Knight is releasing an updated and expanded analysis around the potential impact of Hurricane Harvey, which remains a very real and tragic situation.

• FEMA-designated disaster areas related to Hurricane Harvey are home to 1.18 million mortgaged properties
• Harvey-related disaster areas contain more than 2X as many mortgaged properties as those connected to Hurricane Katrina in 2005, carrying nearly 4X the unpaid principal balance
• Post-Katrina mortgage delinquencies in Louisiana and Mississippi FEMA-designated disaster areas soared 25 percentage points, peaking at over 34%
• A similar impact to Harvey-related disaster areas would see 300K borrowers missing at least one mortgage payment, and 160K becoming 90 or more days past due
• Total unpaid mortgage balances in Hurricane Harvey-related FEMA disaster areas: $179 billion
• Total unpaid mortgage balances in Hurricane Katrina-related FEMA disaster areas: $46 billion

This will be a long-term recovery. If the Harvey-related disaster areas follow the same trajectory as those hit by Katrina, within four months we could be looking at as many as 160,000 borrowers falling 90 or more days past due on their mortgages.”

Mitch Cohen
Sr. Vice President, Managing Director
MARTOPIA PUBLIC RELATIONS GROUP

Hurricane Harvey Ripple Effects

I did not see as many “broken window” fallacy arguments about a boost to GDP from Hurricane Harvey as I expected.

Instead, economists expect a hit to GDP and jobs in the third quarter. Then what?

Forecasting may not be easy. One has to differentiate between hurricane effects and a slowdown from natural causes.

Please consider How Hurricane Harvey Will Ripple Through the U.S. Economy.

Forecasters in The Wall Street Journal’s survey of economists expect the storm to reduce the pace of job gains by about 27,000 jobs a month in the third quarter on average, followed by little change in the fourth quarter and then a boost of 13,000 in the first quarter 2018, as many people find work rebuilding.

Economists also expect the growth rate of gross domestic product, the broadest measure of goods and services produced across the economy, will fall by about 0.3 percentage points in the third quarter, followed by no effect on the fourth quarter, and a 0.2-percentage-point boost in the first quarter of 2018.

Jobless Claims

Early evidence of the hurricane’s impact on the U.S. job market came Thursday, when the Labor Department reported the largest one-week jump in initial jobless claims since the aftermath of superstorm Sandy in November 2012. It is likely only the beginning of a spike in unemployment filings.

In the weeks after Hurricane Katrina in 2005 and Sandy in 2012, jobless claims were highest not during the week of the storm, but two weeks after. Many who were out of work from the hurricane waited until the storm had passed to file their claims.

Compared with the week of the storm, initial jobless claims rose 23% in the second week after superstorm Sandy and 30% in the second week after Hurricane Katrina.

“Irma’s right behind Harvey, so that could cause claims to spike again,” said Ryan Sweet, director of real-time economics at Moody’s Analytics.

Housing

Before the storm, Texas was on track for a 14% increase in housing starts this year, according to James Gaines, chief economist at the Real Estate Center at Texas A&M University.

In 2016, Houston alone accounted for about 4% of the nation’s permitted housing. Now builders wait to assess the market as construction sites dry out—and will compete for workers to rebuild and repair the city.

Household Wealth

Destruction of homes and businesses doesn’t show up in GDP figures, but it would show up in measures of household wealth. Many homeowners and businesses swamped by the storm didn’t carry flood insurance, meaning that a large share of the over $100 billion in estimated damage could reduce household wealth.

“With so many homeowners uninsured, this is more akin to a wipeout of assets such as one would expect from a stock-market crash,” said Constance Hunter, chief economist for KPMG, the accounting firm. “The effects are more negative and widespread.”

Ultimately, “the impact on individual lives will dwarf the economic dollar losses,” said Lynn Reaser, a former Bank of America economist who is now a professor at Point Loma Nazarene University in San Diego.

I am not making a GDP assessment yet. Hurricane Irma has not hit yet and there are two more hurricanes on the way.

I will say this setup looks damn ugly. Best wishes to all those affected.