BIG BUILDERS EVERYWHERE, Hurricane Katrina's fury may go down as the worst thing that never happened to you. You dodged the meteorological bullet in a big way, for now. Two of your biggest cash-cow markets flank one of the most horrific stories of the century. Instead of hitting full on in Florida or speeding west to Texas, the storm set its crosshairs on Louisiana, Mississippi, and Alabama. Few of you even build there.
Given the enormity of the damage, you're probably going to feel a pinch here and there. In triage fashion, laborers and supplies will rush first to those areas in greatest need, a vacuum of resources ensuing in neighboring areas. Although industry experts don't expect these indirect costs to be of dire consequence in the long term, they may sting in the short term.
THE AFTERMATH Michael Carliner, an economist with the NAHB, says he looks at the aftermath of Hurricane Katrina as two tragedies. First, there's the unparalleled situation in New Orleans. The NAHB reports that the flooding has or will render a large share of the more than 200,000 homes in the city inhabitable.
Carliner estimates that Katrina's damage will eclipse anything ever seen before “by a factor of four or five.” Not even the destruction caused by Hurricane Andrew in 1992, which destroyed more than 28,000 homes, or last year's combined effects of Hurricanes Jeanne, Ivan, Frances, and Charley, which nearly totaled as much, compares.
Second, there's the situation along the Gulf Coast of Louisiana, Mississippi, Alabama, and into the Florida panhandle. Carliner says this area will follow a more typical process of rebuilding in the aftermath.
“Except for the New Orleans situation, this is an especially severe but typical hurricane,” Carliner says. Margaret Whelan, an analyst with UBS, agrees, “This isn't something we haven't seen before.”
In the immediate weeks to come, the cost of certain materials will rise as the region struggles to come to grips with what has happened. Gas prices already have spiked to more than $3 per gallon while plywood and OSB costs have skyrocketed. But economists say that those prices should subside in the next few months (see “Supply and Demand,” page 62).
Joseph Snider, vice president and senior credit officer for Moody's, says that the larger, publicly traded builders may be marginally hindered by the price hikes, which he calls “a knee-jerk reaction” to Katrina. However, he says most are “in a position to pass along these costs fairly easily.”
Economists don't foresee a supply chain bottleneck because the rebuilding of the Gulf Coast area will be slow. “We don't know what the number of homes totally wiped out is—and they aren't going to be [re]built at the same time,” Whelan says. “It'll be a step-up over the next couple of months or years.”