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Texas Wildfires & Homeowners InsuranceTexas Wildfires & Homeowners Insurance2024-03-05T06:00:00ZLand
Housing

​​​​​​​​The winter wildfires in Texas have prompted media and community concerns. Will these fires, which include the so-called Smokehouse Creek Fire (now the largest wildfire in the state's history), become a homeowners insurance nightmare?​ To address this, we asked the TRERC Research Staff to consider three primary questions.​​

Are more homes insured in Texas metro areas than in the state's rural communities?

Several factors influence whether a homeowner has property insurance. Two are particularly important because of the demographics in many rural areas. 

Data show ​Texas’ rural areas tend to have older population profiles, and they tend to have lower income levels. Both of these can lead to lower rates of property insurance coverage. Consider that mortgage lenders require borrowers to maintain property insurance. This protects the home, which is the collateral for the loan. Once a household owns the home outright (“free and clear”), maintaining insurance coverage becomes a matter of personal choice (see figure below for percentage of homeowners in some Panhandle counties who currently do and do not have a mortgage). Homes owned outright tend to be owned by older individuals, many of whom may be retired and thus have lower, fixed incomes. So they may choose or be forced to forgo insurance.


Will many properties impacted by wildfire damage lack homeowner insurance?

Yes, but this is speculative without directly assessing the status of those who lost property. What we can say is that the share of homes without a mortgage in the most impacted counties ranges between 50 and 60 percent (higher ownership). Statewide, that share is 43 percent. A much higher share of households in those counties no longer have a lender requiring them to keep insurance.

Will property owners have consequences for lack of coverage?

Rebuilding without insurance is a great burden. Some households will have other sources of wealth to pay for rebuilding. Many will not. The homes in the most impacted counties are older. Owners may not appreciate the gap between their original sale price and the cost of replacement in today’s market. 

In the impacted counties, 11 to 23 percent of homes were built after 1990. Statewide the share is 49 percent. This age difference is reflected in lower monthly ownership costs in these counties compared to​ statewide. Outside the small metro areas like Amarillo, most of these Panhandle counties have been losing population for some time. If homeowners cannot rebuild, they are likely to relocate, adding to the out-migration trends.

2024-03-06T06:00:00Zhttps://www.recenter.tamu.edu/info/blog/?Item=191
$200,000 Isn’t What it Used to Be$200,000 Isn’t What it Used to BeDr. Adam PerduePerdue
2023-02-23T06:00:00ZHousing

​​When are $159,776, $200,000, and $250,350 all equal? When you're talking about housing over time.

A recent RECON article discussed the disappearance of new homes selling for less than $200,000 in Texas. In the article, I mentioned inflation played a role in the reduction of affordable homes.

Let's talk about that.

As we've learned the last couple of years, $200,000 isn't what it used to be. But it can be even more complicated than that.

Look at Figure 1 and notice how the Consumer Price Index (CPI) has changed over the past 11 years. The dotted lines convert today's dollars to 2011 values, while the solid lines convert the past values to 2022 dollars.

Figure 1: Consumer Price Index, 2011-22

According to the figure, the average price of goods and services was around 35 percent higher in 2022 than it was in 2011 (based on the broadest CPI measure, shown as solid red line.) Alternatively, prices in 2011 were only 75 percent as high as they were last year.

The figure also shows home prices (solid blue line) increased more rapidly than all other goods and services (solid green line). Since housing makes up a large portion of the CPI basket, just doing standard CPI adjustments does not tell the whole story. What follows will track housing prices relative to the prices of all other goods.

If you have $200,000 in 2022 dollars, the amount of other goods and services (excluding housing) you could buy would have cost $159,776 in 2011 dollars. Inversely, $200,000 in 2011 dollars would have bought other goods and services worth $250,350 in 2022 dollars.

Making these adjustments hasn't really changed the underlying trend, just the scale, as seen in Figure 2.

Figure 2: Share of Homes Sold Below $200,000 in Inflation-Adjusted Terms Based on Index Year

The share of homes sold below $200,000 in inflation adjusted terms differs depending on which measure of inflation is used. In 2011, roughly 60 percent as many new homes sold for under $200,000 in 2022 dollars ($159,776 in 2011 dollars). In 2022, there were seven times more new homes sold for under $200,000 in 2011 dollars ($250,350 in 2022). ​

2023-02-23T06:00:00Zhttps://www.recenter.tamu.edu/info/blog/?Item=189
When disaster strikes: National Flood Insurance Program in TexasWhen disaster strikes: National Flood Insurance Program in TexasWesley MillerMiller
2023-02-09T06:00:00ZInfrastructure & Transportation

​​​​​​​​​​​​​​Editor’s note: This post is part of a new series about the impacts natural disasters have on a region’s public health, economic activity, and individual decision-making. While the papers cited in the posts extend beyond natural disasters in Texas, the results will be contextualized to the state’s population. For more about this series, click here​.

This month’s post on "When Disaster Strikes"​ explores the extent of the National Flood Insurance Program (NFIP) in Texas. The NFIP is administered by the Federal Emergency Management Agency (FEMA) and has been the primary source of flood insurance since its inception in 1968.

Communities may select into the NFIP after adopting and enforcing federal floodplain standards. In return, property owners in participating communities have access to flood insurance through the NFIP (which is often offered below market rate). Single-family homeowners account for the majority of NFIP policies, and a total of $250,000 of building coverage and $100,000 of content coverage is available. The map shows Texas’ NFIP participation as of 2022.

Texas Communities in NFIP, 2022
Map of Texas NFIP participation

Note: Municipal utility and levee improvement districts are dropped due to insufficient geospatial data, but census-designed places (CDPs) are included.
Source: FEMA Community Status Book Report

Although there is broad community-level participation across the state, less than 10 percent of Texas residences are insured through the NFIP, more than one-third of which reside in Harris County. Harris County also struggles with low take-up rates, and approximately 85 percent of its population was uninsured during Hurricane Harvey in 2017.

In addition to offering flood insurance, the NFIP is tasked with modeling and communicating flood risk to the general public. This communication is conducted through Flood Insurance Rate Maps (FIRMs) that are periodically updated to reflect changes in flood hazard. FIRMs delineate areas into different flood zones based on their annual chance of flooding. For example, Zone A (or the 100-year floodplain) is classified as the area where there exists a 1 percent chance of flooding in any given year.

Since 1973, properties with federally backed mortgages that lie in the 100-year floodplain have been required to purchase flood insurance. This mandate, however, has failed to induce widespread coverage even in high-risk areas amid challenges with enforcement.

There are concerns that disaster relief from other government agencies may discourage at-risk residents from insuring against flood damage. This strategic substitution may play a role, but disaster relief is largely insufficient to fully restore properties after a major flooding event. The average NFIP payout in Texas due to Hurricane Harvey was roughly $121,000—about four times more than the high-end of FEMA’s Individuals and Households Program that offers cash assistance for uninsured disasters.

Additional concerns surrounding the NFIP include its impact on the private insurance market as well as its increasingly negative fiscal balance. Significant legislative attention has focused on reforming the program through improved accuracy in terms of both flood modeling and establishing actuarially fair premiums.

Texas’ mandatory flood disclosure of residential properties is aimed at increasing hazard awareness, and municipalities have implemented a patchwork of policies to mitigate the risk of flooding. As the frequency and intensity of storms increases, so will the need for accurate information and education of flood risk as well as the availability of flood insurance.

2023-02-09T06:00:00Zhttps://www.recenter.tamu.edu/info/blog/?Item=188
When disaster strikes: Winter Storm UriWhen disaster strikes: Winter Storm UriWesley MillerMiller
2023-01-05T06:00:00ZEconomy
Infrastructure & Transportation

​​​​​​​​​​​Editor’s note: This post is part of a new series about the impacts natural disasters have on a region’s public health, economic activity, and individual decision-making. While the papers cited in the posts extend beyond natural disasters in Texas, the results will be contextualized to the state’s population. For more about this series, click here​.

The third paper of this blog series, “Natural Disasters and Willingness to Pay for Reliable Electricity: The 2021 Winter Storm in Texas as a Natural Experiment,” is one of the first academic studies of Winter Storm Uri that shocked Texas’ electrical grid in February 2021. Researchers from the University of Houston’s Hobby School of Public Affairs fielded an online survey one month after the freeze. The sample consisted of 1,500 residents across the state who were asked about their experiences during the storm and their subsequent opinions regarding proposed changes to Texas’ electric system.

The researchers implemented a choice experiment, where they prompted respondents to select between bundles that included: (1) a policy change, (2) the cost of the change incurred by the individual in kilowatt hours (kWh), and (3) the policy’s effectiveness in terms of individual exposure to future power outages. The menu consisted of five policies that received significant attention after the storm, and each policy was randomly assigned a cost (from $0.00 to $0.06 more per kWh paid by the individual) and effectiveness (from 0 to 12+ hours of potential power outages) (Figure 1). The survey repeated this exercise four times for each respondent.​​

Figure 1: Example Choice Experiment​​

As expected, Texans prefer options that generate lower costs and fewer outages. There is a clear consensus for proactive measures to protect against future grid vulnerability, and the most popular option is to winterize the system (see table).

Table: Policy Proposals

Policy preferences vary, however, depending on respondents’ experiences during Winter Storm Uri. In particular, individuals who never lost power are more likely to prefer increasing the renewable energy supply or requiring a minimum reserve capacity compared with those who experienced rolling blackouts. Respondents who suffered longer-than-average outages are more likely to prefer merging the Texas grid with one of the two national grids.

Using a mixed logit model, the researchers estimate individuals’ willingness to pay for each policy proposal. Despite disproportionate exposure to the electrical grid’s failure, respondents experiencing above-average outages are less willing to pay for all measures (Figure 2). The authors discuss the possibility that negative experiences during Winter Storm Uri may have decreased individuals’ confidence in energy service providers, thereby making them less likely to trust the competence of institutions and the effectiveness of policy in general. Indeed, households who suffered longer-than-average outages are more likely to blame electricity producers and the government for the blackouts compared with those who suffered shorter or no outages.​

Figure 2: Marginal Willingness to Pay Across Policy Investment

Winter Storm Uri revealed the vulnerabilities of Texas’ electrical grid and prompted a discussion ​of how to protect against extreme weather that has persisted two years after the storm. With an array of policy proposals heading into the 2023 legislative session, it is imperative that leaders maintain a pulse on public opinion and understand how that pulse was impacted by individual experiences during the disaster.

2023-01-05T06:00:00Zhttps://www.recenter.tamu.edu/info/blog/?Item=187
When disaster strikes: Hurricane HarveyWhen disaster strikes: Hurricane HarveyWesley MillerMiller
2022-12-12T06:00:00ZEconomy
Infrastructure & Transportation

​​​​​​​Editor’s note: This post is part of a new series about the impacts natural disasters have on a region’s public health, economic activity, and individual decision-making. While the papers cited in the posts extend beyond natural disasters in Texas, the results will be contextualized to the state’s population. For more about this series, click here.

​The second paper of this blog series, “Let The Rich Be Flooded: The Distribution of Financial Aid and Distress After Hurricane Harvey,” was recently published in the Journal of Financial Economics by a team of researchers from the Federal Reserve Bank of St. Louis and the Leeds School of Business at the University of Colorado Boulder. Billings et al. (2022) study how flood damage affected Houstonians’ financial health, and they test for differential effects across various subpopulations. They use quarterly credit information for a panel of 108,707 individuals distributed across more than 32,000 census blocks in the Houston MSA.

The combination of geospatial and financial data produces several interesting summary statistics (see table). Hurricane Harvey flooded an average of 10 percent of the developed land within each census block, and the flood depth (weighted by the portion of the census block that flooded) averaged more than three inches across the region. Flooding impacted a wide range of socioeconomic groups, and the most-flooded census blocks had slightly higher median home values and incomes relative to Houston’s census-block average. Note that the positive correlation of flooding and socioeconomic status across census blocks does not imply a similar relationship within census blocks.

Table: Summary Statistics
The authors’ empirical analysis is motivated by the consensus in the natural disaster literature (i.e., the average net financial impact of disasters is modest and short-lived). Using a treatment-intensity difference-in-differences design, they test this theory by comparing the evolution of financial outcomes for individuals who lived in non-flooded census blocks with those who lived in blocks with varying levels of flooding. The initial estimates suggest no meaningful increase in bankruptcy rates for flood-exposed individuals (Figure 1), a result consistent with the literature but still surprising given the average $200,000 of repair and renovation costs to Harvey-damaged homes.

​​Figure: Effect of Flooding on Census Block Bankruptcy Rates

​A pattern of flood-induced bankruptcy emerges, however, when restricting the sample to certain subpopulations. Quarterly bankruptcy rates trend upward about a year after the storm for people living in flooded census blocks with an above-median share of owner-​​occupied housing (Figure 2). Bankruptcy may be a less relevant measurement of financial distress for renter households because, on average, they have fewer exempt assets that may be protected through a bankruptcy process (e.g., equity in their principal residence).

The bankruptcy pattern disappears when further conditioning on people who live in census blocks where the majority of developed land lies in the 100-year floodplain, areas that may have been protected through presumably higher flood-insurance participation (Figure 2A). Less than 10 percent of their sample, however, lives in those floodplain census blocks.

The impact of flooding on bankruptcy rates becomes even more apparent when restricting the sample to census blocks that have an above-median share of residents with low “ability-to-repay” (Figure 2B), a metric the authors calculate based on Equifax Risk scores and census-block median income. The point estimates peak around 0.7 percentage points, representing a 20 percent increase in mean bankruptcy rate for people in these same areas before Hurricane Harvey.

Figure: Above-Median Owner Occupied

Billings et al. corroborate these concentrated effects when analyzing individuals’ proportion of debt that is at least 90 days delinquent (Figure 3). Delinquency imm​ediately increases for below-median ability-to-repay individuals, but only for those living outside the floodplain. 

Figure: Effect of Flooding on Severe Delinquency

Both the bankruptcy and the delinquency results reveal significant financial distress that may be masked in the aggregate. While the average Housto​​nian’s balance sheet may have held firm, Hurricane Harvey caused significant financial distress for likely homeowners outside the 100-year floodplain who had lower baseline levels of financial health as measured by their “ability-to-repay.” This metric is a critical component in qualifying for the Small Business Administration’s (SBA) disaster loans, which often offer highly attractive terms (e.g., a 1.75 percent interest rate with up to 30 years to repay). Billings et al. illustrate the positive relationship between SBA-loan approval rates of FEMA registrants and financial health (Figure 4). This pattern is mechanical in the sense that stringent lending standards are designed to achieve the SBA’s goal of limiting taxpayer subsidy while offering aid.

Figure: Share of FEMA Registrants Approved for Disaster Aid

The positive correlation between financial health and approval for FEMA’s Individuals and Households Program (IHP), however, is unexpected given that IHP-grant eligibility is based exclusively on uninsured damages less other forms of assistance, rather than on an individual’s ability to repay and factors like credit score. 

Billings et al. find that this positive relationship holds even after controlling for flood insurance status, degree of property damage, and a multitude of other covariates. They estimate that individuals in low ability-to-repay census blocks are 12.3 percent less likely to receive FEMA assistance than their observably equivalent peers. The regressive allocation of these primary disaster assistance programs provides a potential explanation for the differential damage caused by Hurricane Harvey. Moreover, the aid distribution suggests federal disaster assistance serves more as a reinvestment stimulus than a social safety net.​

2022-12-15T06:00:00Zhttps://www.recenter.tamu.edu/info/blog/?Item=186
When disaster strikes: Hurricane KatrinaWhen disaster strikes: Hurricane KatrinaWesley MillerMiller
2022-11-14T06:00:00ZEconomy
Employment
Housing
Infrastructure & Transportation
Public Facilities
Market Overview

​​​Editor’s note: This post is part of a new series about the impacts natural disasters have on a region’s public health, economic activity, and individual decision-making. While the papers cited in the posts extend beyond natural disasters in Texas, the results will be contextualized to the state’s population. For more about this series, click here.

The first paper highlighted in this blog series was published by Deryugina et al. in the American Economic Journal: Applied Economics in 2018. It measures the social and economic costs of Hurricane Katrina on the residents of New Orleans. The cornerstone of this study is the authors’ access to federal tax returns filed between 1999 and 2013. These data allow the multi-year comparison of pre-storm New Orleanians to similar individuals from ten U.S. cities (e.g., Detroit and Jackson, Miss.). Due to challenges in identifying long-run impacts of economic shocks, I’m going to focus on estimates of how New Orleanians fared one to two years after the storm.

New Orleans was experiencing population decline when Hurricane Katrina landed in August 2005, making it difficult to disentangle the portion of population loss caused by the devastation. Deryugina et al. estimate Katrina increased the likelihood of leaving New Orleans within eight months by at least 29 percentage points (on top of the roughly 15 percent of adults who left the city each year) (Figure 1). A large share of the displaced population settled in the Houston region.
Figure 1. Probability of an Intercity Move

Source: Deryugina et al. in the American Economic Journal: Applied Economics (2018)
Note: Figures reproduced using coefficient estimates and standard errors provided in the appendix.


In addition to population disbursement, natural disasters are disruptive to labor markets as recovery efforts require time that could be otherwise spent working. The results corroborate this theory with an estimated $2,000 decrease in income caused by Katrina that persisted for more than a year. These effects were especially prevalent for those living in the most damaged neighborhoods as well as those who left New Orleans permanently. Relocation activities, such as searching for a home in a new town, require additional time and energy that may weigh on labor market participation. As expected, the negative income shock coincided with spikes in unemployment.

A combination of government and non-governmental agencies contributed to recovery and relief efforts in the aftermath of Hurricane Katrina. The federal government spent approximately $120 billion through a multitude of channels, one being changes to the tax code. One such measure availed victims to tax-favored early distributions and loans from retirement accounts (i.e., penalties from certain early withdrawals were reduced) (Figure 2). Deryugina et al. estimate Hurricane Katrina elevated the propensity of early drawing from retirement, leading to an average increase of $458 of income withdrawn through 20 months after the storm. This source of income supplemented lost wages and earnings, enabling some households to smooth the effects of the negative shock over time.
Figure 2. Early Retirement Withdrawals Following Hurricane Katrina
Source: Deryugina et al. in the American Economic Journal: Applied Economics (2018)
Note: Figures reproduced using coefficient estimates and standard errors provided in the appendix​.


Despite labor market challenges and financial distress, Deryugina et al. detect no clear impact on marital decisions. In particular, they find little change in the marital status of New Orleanians compared with the control group. The lack of net effect, however, could mask changes in divorces and new marriages (which could offset each other if affected in a similar magnitude). Results suggest an increase in divorces caused by Katrina, but the estimates are noisy.

This study illustrates the economic challenges facing households after a natural disaster. Preparation and mitigation measures, evacuation, and the subsequent recovery all require resources that are necessarily substituted away from other activities. Evidence indicates that it takes years for conditions to normalize after major shocks, and we are still learning how to smooth that recovery for affected populations.


2022-11-17T06:00:00Zhttps://www.recenter.tamu.edu/info/blog/?Item=185
When disaster strikesWhen disaster strikesWesley MillerMiller
2022-11-11T06:00:00ZEconomy
Infrastructure & Transportation
Housing
Industrial
Public Facilities
Market Overview
​​​In May 2022, the National Oceanic and Atmospheric Administration (NOAA) forecasted the seventh consecutive year of above-average Atlantic hurricane activity. Despite 16 days remaining in hurricane season, NOAA’s prediction proved accurate, with ten hurricanes and an additional six named storms resulting in $53 billion in damages and hundreds of deaths.

Fortunately for Texans, the storms have strayed from the western portion of the Gulf Coast aside from isolated showers. The most recent storm, Hurricane Nicole, made landfall in Florida on Nov. 9 and moved through the Mid-Atlantic states, but Texas remained in the clear. The frequency and intensity of natural disasters (e.g., hurricanes and wildfires) are forecast to increase throughout the decade, exposing more people and places to these destructive events.

Given these risks, the Texas Real Estate Research Center at Texas A&M University is launching “When Disaster Strikes,” a blog series to better inform Texans of the costs and consequences of natural disasters. The series will summarize important findings from academic publications, including the impacts on public health, economic activity, and individual decision-making. While the literature extends beyond natural disasters in Texas, the results will be contextualized to the state’s population.

Look for the first post Thursday, Nov. 17.

Figure: 2022 Atlantic Hurricane Season Outlook
2022-11-14T06:00:00Zhttps://www.recenter.tamu.edu/info/blog/?Item=184
Trust is based on perception, not a 51-year history Trust is based on perception, not a 51-year history David S. JonesJones, D.
2022-07-11T05:00:00ZCenter News

​​We became the experts for Texas real estate on May 18, 1971. The minute Gov. Preston Smith signed Senate Bill 338, the Texas Real Estate Research Center was created, and Texans had a place they could go to for answers.

We were instantly experts not by virtue of anything we had done to date but because we were now part of an institution known worldwide for its research — Texas A&M University.

Of course, in the 51 years that followed, the Center has built a strong reputation. More than 2,300 articles and reports are a testament to our history of applied research.

In the marketing world, reputation is called brand authority. Our authority comes from the perception stakeholders have of us. Stakeholders trust us because they perceive us as the experts. Much of that trust is because we are part of Texas A&M.

A few years ago, Reputation Lighthouse in Austin conducted a communications audit of the Center. One of the questions we wanted answered was how is TRERC's reputation helped or hindered by our affiliation with Texas A&M University. We were pleasantly surprised that stakeholders listed so many advantages they perceived in this affiliation.

  • It gives the Center credibility.
  • It showcases independence with the appeal of scholarly research.
  • It connects us to a Tier 1 research institution.
  • It provides stature not available from a self-funded independent group.
  • We are supported by a powerful university, and our researchers are well suited to research at such a preeminent institution.
  • TRERC gains credibility because it is expected to live up to the university's reputation.

Each day our staff works to earn stakeholders' trust. Tell us how we're doing. We appreciate the feedback. Contact us at info@recenter.tamu.edu.​

2022-07-11T05:00:00Zhttps://www.recenter.tamu.edu/info/blog/?Item=183

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