Hurricane Sandy swept through 12 U.S. states, causing floods and fires, and an estimated $10 billion to $20 billion in potential losses, research firm Capital Economics estimated Tuesday.
Mortgage Bankers Association CEO David Stevens said the trade group remained closed Tuesday and he expects loan application numbers and rates to be affected for the period that includes Hurricane Sandy.
But overall, Stevens views the storm as a “temporary blip” that will have no significant impact on the mortgage finance system. And some industries, including home construction and repair, will see a boost in the aftermath, he noted. “Post storm activity will be somewhat stimulative to the construction trades.”
Last year’s Hurricane Irene, which was less severe, ended up costing the Northeast region $10 billion while 2005’s Hurricane Katrina led to $100 billion in cleanup expenses around the Gulf Coast, according to data from Paul Ashworth, chief U.S. economist for Capital Economics. CoreLogic (CLGX) estimated that 284,000 properties with a value of $87 billion could be impacted by the storm.
Despite the negative impact of the hurricane, Capital Economics contends Sandy’s overall effect on economic output “is likely to be small,” although the economy will take a hit early on.
The states impacted by Sandy represent 23% of the nation’s gross domestic product, with the New York metropolitan area alone accounting for 10% of GDP.
The financial impact will be short-term and over before the end of this quarter, Capital Economics said. When factoring in the expected boost to GDP on cleanup activity, the overall impact is modest, the research firm said.
Sales leading up to the storm will have boosted economic activity, and in many parts of the East Coast individuals will be working from home or returning to their offices as soon as they can.
“At this point we’re contractually obliged as economists to bring up the infamous parable of the broken window,” Capital Economics said. “Fixing a broken window may generate income for the glazier but, since this is just the replacement of damage to the existing capital stock, it doesn’t add to the nation’s net wealth. That may be so, but it does add to GDP.”
Much of the clean up spending will be born by insurers and large global reinsurance firms, many of which are based in Europe, the research firm indicated.
Jim Vogel with FTN Financial said a return to fully operating financial markets is contingent on logistical factors in New York and the functioning of government agencies in Washington.
“Decisions will have to balance the demands of keeping the markets open regardless of circumstances — no small matter of pride — with deference to area officials responsible for repairing and clearing the impact of floods and other damage that more than lived up to the hype and warnings about Sandy,” said Vogel.
Megan Hopkins contributed to this report.