Natural disasters stay elevated, causing higher mortgage default rates

The number of large-scale natural disasters continued to proliferate in 2019, creating new situations where local mortgage delinquency rates could stay inflated for the following 12 months, according to CoreLogic.

Last year was the seventh in the last decade in which 10 or more weather and climate disasters exceeding $1 billion have occurred. At least 14 events with losses exceeding $1 billion in this country took place during 2019 — more than double the annual adjusted average of 6.5 events per year from 1980 to 2018, according to National Oceanic and Atmospheric Administration cited in the report.

"While payment forbearance programs provided by the Federal Housing Administration, Department of Veterans Affairs, lenders and secondary market investors can lessen the financial stress following a natural disaster, local delinquency rates still rise," the CoreLogic report said. "The analysis of loan performance in the aftermath of a disaster indicates that it can take 12 months or more before the serious delinquency rate returns to its predisaster level."

CoreLogic pointed to five events in 2017 and 2018 — three hurricanes and two earthquakes — where the seriously delinquent mortgage rate soared shortly after occurrence.

In two cases — in Houston after Hurricane Harvey and Panama City after Hurricane Michael — while the seriously delinquent rate is down a year later, it is still elevated compared to both before and at the time of the storms.

Among the 2019 U.S. natural disasters listed in the report were a hailstorm and subsequent flooding in Houston in May; the tornado that struck Dayton, Ohio, the same month; the Ridgecrest earthquake in California in July; Hurricane Barry, which made landfall in Louisiana also in July; Hurricane Dorian in the Caribbean and along the Atlantic Coast in late August and early September; the Dallas tornado in October; and the latest round of wildfires in California.

"While 2019 was not the most catastrophic year-to-date, it demonstrated a continuing trend of higher losses," Tom Larsen, principal, industry solutions at CoreLogic, said in a press release. "Affected communities experience an ensuing ripple effect from natural disasters, which is why continuously improving the data and analytics surrounding these catastrophes is so important in making our society more resilient. Understanding the past is critical to contending with the risk of the future."

Natural disasters also change the local housing market dynamics, exacerbating existing inventory shortages.

"The significant loss of housing stock also affects the cost of shelter in affected neighborhoods, especially those that already have a severe shortage of homes," the report said. "Two recent examples are the Tubbs and Camp wildfires. The Camp Fire incinerated about 20% of the single-family housing stock in Butte County, and the Tubbs Fire destroyed about 6% of the single-family homes in Santa Rosa in Sonoma County. For some of the affected neighborhoods, the loss was close to 100%."

As those displaced families enter the home buying market, local prices rise.

"In both Sonoma and Butte counties, rent and price growth accelerated after the fires. When the wildfires struck each locale, home price growth was running at or slower than the statewide rate. After the disasters, price growth accelerated to 4 to 7 percentage points faster than statewide growth," the report said.