Editor’s note: This is the first in a two-part series investigating the impact of disasters on a housing market. Part I investigates the impact of environmental disasters, and Part II in May will look at the impact of natural disasters.
A silent and invisible enemy attacked Porter Ranch, California, as Halloween approached last year.
Residents in this high-end master-planned development about 35 miles northwest of the city of Los Angeles complained of nausea, nosebleeds, and a nasty smell — particularly in the part of the community north of Highway 118 nestled among the foothills of the Santa Susana Mountain Range.
“I personally went to the shopping center there for dinner but could smell it so strongly in my car I didn’t feel it would make sense to go to the restaurant,” said Bonnie Sterling, a real estate agent with Sterling Living covering communities near Porter Ranch.
A week before Halloween, Southern California Gas Company identified the apparent cause of these symptoms: an underground storage facility in the Santa Susanas leaking natural gas, according to a timeline of events provided by The Los Angeles Daily News. Ripple effects from what Los Angeles Mayor Eric Garcetti called a “disaster” are also spreading to the local housing market.
Price cuts in Porter Ranch
“It’s the most important question that always comes to mind — how’s the gas leak?”, said Mamdouh Elalami, a real estate broker with Seven Star Properties covering Southern California’s San Fernando Valley, including Porter Ranch.
“Homes are sitting on the market much longer than they used to. … Sellers are being forced to go down in price.”
RealtyTrac public record real estate data shows home sales in the Porter Ranch ZIP code (91326) dropped 44 percent in the three months following the discovery of the gas leak compared to the previous 12 months, with sales of homes north of Highway 118 and closer to the gas leak plummeting 60 percent during the same time period.
“I think there is a lot of fear in that market right now. From a buyer’s perspective there are probably a lot of great deals,” said Jim Malmberg, a real estate agent with John Hart Real Estate who covers the west side of Los Angeles and the San Fernando Valley, including Porter Ranch.
“I would imagine that while the leak was happening that no bank would have financed.”
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Fear in Flint
Banks also initially balked at financing home purchases in Flint, Michigan, as a different type of environmental disaster involving tainted water unfolded there, according to Chris Theodoroff, 2015 and 2016 president of the East Central Michigan Association of Realtors.
“Initially we had a couple of lenders that started to balk, but we called them in and told them these houses are not in the city of Flint. … we are not on the Flint system, and we didn’t have a problem,” said Theodoroff, an associate broker at Piper Realty Company.
The foundation for the Flint water crisis was laid in April 2014 when the city decided to switch its water source from Detroit Water to the Flint River, according to the Detroit Free Press. The domino effects from that decision started with a relatively innocuous boil water advisory in August 2014 and escalated exponentially in September 2015 when high lead blood levels were discovered among Flint children in September 2015.
Recovery in remission
The impact on the Flint housing market: a nascent real estate recovery that abruptly reversed course in early 2016 after the crisis escalated. Median home prices in the city of Flint dropped 21 percent in the first two months of 2016 compared to the first two months of 2015 even while median home prices countywide increased 8 percent during that same time period, and median home prices statewide in Michigan were up 18 percent during that same time period. Nationwide home prices were up 8 percent for the first two months of the year.
“Flint has not seen the recovery that everyone else has. It has not seen the recovery in the car industry that everyone else has,” said Andy Sussex, Principal Broker and Owner with Castle Real Estate, covering parts of Genesee County along with parts of Oakland and Macomb counties in the Detroit metro area.
“And then you add the water crisis on top of that and it kind of squelches any kind of recovery.”
Aging infrastructure
The Porter Ranch crisis is less likely to have long-term impacts on the housing market than the Flint crisis, according to Cliff Lipscomb, director of economic research at Greenfield Advisors, an Atlanta-based economic and real estate research firm.
“Between the two I think Porter Ranch is more likely to recover in the long run. Flint has had so many issues over the years, and this is yet another one that has impacted the area,” he said. “I think the two situations really exemplify the infrastructure crisis that our country is facing.”
Read the full story (and more) in the April 2016 Housing News Report
Daren Blomquist is the vice president of RealtyTrac.