Katrina Causes Prices for Homes
To Diverge Along the Gulf Coast

Hurricane Katrina is driving real-estate prices both up and down, depending on where you are along the Gulf Coast.

Close to New Orleans, about 60 miles west of where Katrina's eye passed in Bay St. Louis, Miss., prices are rising as buyers rush to snap up homes. But farther east, mostly in Florida, fears of more hurricanes are putting a damper on once-hot property markets.

The line between boom and bust appears to be roughly 200 miles east of New Orleans. Less than 10 miles to the west of that line, real-estate investor Andrea Moody is being besieged by potential buyers for a four-bedroom riverfront house in Gulf Shores, Ala. She bought the house, which had sustained $60,000 of damage from Hurricane Ivan in September 2004, this May for just under $1 million.

But with so many homes in the area destroyed or damaged last year, prices of remaining homes have been on the rise. So when Hurricane Katrina brought scores of new investors into the area two weeks ago, Ms. Moody decided to put the house, which she restored, on the market -- for $1.63 million. "I definitely expect to get my price," she says.

In Fairhope, Ala., 162 miles east of New Orleans, there has been a bidding war on a 300-acre parcel that no one had wanted for a year, says broker Patrick Daily. About 30 miles farther down the coast in Orange Beach, Ala., a developer has received 175 inquiries in the past two weeks for a luxury condo project, Mandolay Beach Resort, which hasn't even broken ground yet. Rodger Lowery, a Pensacola, Fla., real-estate appraiser, says he plans to buy a $975,000 unit because he expects appreciation rates of 10% to 15% a year.

But farther out along the coast, Hurricane Katrina seems to have deadened markets. In Destin, Fla., 250 miles east of New Orleans, agents say that second-home buyers are backing out of contracts and making offers as much as 30% below asking prices. Sellers are lowering prices -- the Multiple Listing Service reports 200 price changes from Sept. 6 to Sept. 13, "mostly reductions," according to real-estate agent Cynthia Roberson. "Katrina has brought this market to a screeching halt," says Destin real-estate broker Jane Araguel.

Barry Barr, a Montgomery, Ala., restaurateur, says he put his two-bedroom beachfront Destin condo on the market two weeks ago for $875,000, even though it recently had appraised for $950,000, because owning in such a storm-prone area was "really unnerving."

In Punta Gorda, Fla., nearly flattened by Hurricane Charley last year, prices had been rebounding sharply all summer as investors snapped up properties. Inventory was tight, since owners vowed to stay put and rebuild. But now, though the town is 750 miles southeast of New Orleans and wasn't hit by Katrina, local agent Tom Goffe says some owners have finally had enough worrying about hurricanes and are putting their houses up for sale. "Katrina has pushed a few people over the line," he says. Indeed, listings have shot up as far away as Naples, 800 miles away on Florida's west coast, which hasn't been directly hit by a hurricane since 1960, says broker Joe Ballarino.

Meanwhile, in Galveston, Texas, 370 miles west of New Orleans, the storm has reawakened memories of the 1900 hurricane that hit the island, killing more than 8,000 people. Real-estate brokers say activity has come to a standstill, and price growth, which had been averaging more than 15% a year earlier, is down to about 5%. Although most of the luxury homes that now line the island are on stilts and have been built to the highest building codes, broker Marilyn Winters says buyers are just too shaken by Katrina to think about investing in a beach house right now. She isn't sure how long the lull will continue. "I just wish I had a crystal ball," she says.

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