Crude Summer: The Economic Impact of the Oil Spill
Crude Summer: The Economic Impact of the Oil Spill
The population of the Alabama coast typically swells by 100,000 to 150,000 people each summer, says Alabama REALTORS® Executive Vice President J. Danny Cooper. But in mid-July, in the aftermath of the Gulf oil spill, coastal vacation properties were only 25-30 percent occupied, he says.
Cooper says the drop in sales and rentals comes as a direct result of the oil spill. On April 20, the Deepwater Horizon drilling rig exploded, killing 11 people, and subsequently sank, which led to the deepwater well gushing oil into the Gulf of Mexico for 86 days. "Thousands of coastal vacationers stopped coming,” he says. The buyer tax credit ended at around the same time, but first-time buyers are a nominal share of the coastal market, he says.
On the coast in neighboring Mississippi, Lisa Hollister, managing broker of Coldwell Banker Alfonso Realty in Ocean Springs, says sales were down by a third in June, which is typically her busiest month. “Buyers are saying they don’t know if they want to invest because they don’t know what’s going to happen,” she says. “It’s the fear of the unknown that causes buyer paralysis, and I think that’s what we’re seeing.”
But all was not lost. Similar to what practitioners saw Louisiana, rentals on the Mississippi coast quickly filled with cleanup contract workers. And now that the well is capped, the end may be in sight, Hollister says. “We know there will a period of cleanup,” she says. “Now we can make a plan to go forward.”
Florida May Be Hit Hardest
When you consider that one home sale at the national median price of $172,500 contributes $57,668 into the local economy, it quickly becomes apparent that fewer transactions in any market will have a big economic impact, says NAR Chief Economist Lawrence Yun.
In the long-term, the economic implications of the oil spill could be most severe in Florida, Yun says. While the physical impact of the oil has largely been contained to the Panhandle of Florida, long-term economic consequences the spill will cost businesses and communities throughout the state.
Fitch Ratings Managing Director Roelof Slump said in June that due to significant home price declines and a continued high rate of unemployment, half of all securitized non-agency mortgage loans in Florida were 60 days or more overdue. About half of all borrowers in the state are current on their mortgage payments, but nearly 40 percent owe more than 120 percent of their home values.
“Further economic stress brought on by the Gulf oil spill and declines in the tourism and fishing industries would be likely to further increase default rates,” Slump said.
The Florida Association REALTORS® hosted a town hall meeting on the oil spill on July 9, with about 130 real estate professionals, public officials, and speakers in attendance. Associations and brokerages from around the state also tuned in via Web cam to hear representatives from BP’s recovery efforts and claims process answer questions from Florida residents, mainly about compensation.
FAR also met with Kenneth Feinberg, appointed by the Obama Administration to oversee the $20 billion BP escrow fund and transition the claims process to the new Gulf Coast Claims Facility. The fund was established through negotiations between BP and the administration to pay all claims of damage and loss from the oil spill. All eligible claims arising out of the oil spill must be administered through this independent claims facility. Chief Executive Officer John Fridlington says FAR requested changes to claim guidelines with input from real estate industry experts. The association also called for an appeals process for denied claimants.
NAR Has a Voice in Claims Process
While Florida is likely to feel the economic impact acutely, practitioners in any Gulf Coast markets could potentially have felt a slowdown in sales. According to Rep. Nydia Velazquez (D-N.Y.), chairwoman of the House Small Business Committee, an estimated 7 million businesses in the Gulf have been impacted by the oil; 6 million are small businesses with 10 or fewer employees.
In July, Feinberg met in Washington, D.C. with NAR's CEO Dale Stinton, Yun, Cooper, and others to discuss REALTORS®’ eligibility for consideration in the claims process. “We are doing all we can to make sure that REALTORS® have an opportunity to have their claims heard," Stinton says. "After an amiable but very serious meeting with Mr. Feinberg, I feel encouraged that the process and Mr. Feinberg's attitude towards real estate professionals is moving in a positive direction."
BP is expected to handover all handling of claims to Feinberg and the Gulf Coast Claims Facility on Monday, Aug. 23. All claims moving forward must be made online at www.gulfcoastclaimsfacility.com, or at any of the existing 35 Gulf Coast claims centers.
BP says that as of Aug. 5, it has paid $303 million in claim payments to more than 40,000 individuals and businesses impacted by the oil spill in the Gulf. Liz Castro, BP’s governmental and public affairs spokesperson, says that real estate professionals should file a claim if they feel they have suffered loss of income due to canceled contracts as a direct result of the oil spill. However, real estate-related claims are on hold as BP works with Feinberg to transition to the new independent Gulf Coast Claims Facility.
How You Can File a Claim
Under the Oil Pollution Act of 1990, BP is paying "all legitimate claims for damages resulting from the oil spill and necessary response costs." This includes: property damage, net loss of profits and earning capacity, subsistence loss and natural resource damage, removal and cleanup costs, as well as state and local government reimbursements for increased public services and net loss of government revenue.
Glenn DaGian, a BP liaison in Louisiana, says that real estate-related claims will be handled on a case-by-case basis. “If home owners feel their home’s value has dropped, or [real estate agents] have seen sales fall through, they should file a claim,” DaGian says. He says the $20 billion claim fund is going to address these and other types of claims.
However he did not have an estimate on how long the process could take or when there might be any sort of standard guidelines for addressing REALTOR®-specific claims from Feinberg.
Claims can be filed through any of the Gulf claims offices, online at www.gulfcoastclaimsfacility.com, or by calling the claim number: 1-800-440-0858.