American home owners and buyers may soon need their own relief fund to help bail them out of higher costs associated with owning and buying a home.

Chances are, those who didn't have homes directly in the path of Hurricane Katrina nevertheless will feel added financial burden caused when the storm roared into the Gulf Coast.

For starters, insurance and building costs are likely to rise nationwide just as those costs have risen regionally in the past when less calamitous acts of Mother Nature unleased their fury.

Much of those costs will be passed onto consumers already whipped by a housing boom that changed the face of financing to help ease some of the existing increases in housing costs.

In some cases, those extra costs on the heels of Katrina are due to poor long term planning.

"Insurance as we know it is threatened by a perfect storm of rising weather losses, rising global temperatures and more Americans than ever living in harm's way," said Mindy S. Lubber, president of Ceres, which commissioned a study on changing weather patterns and related insurance costs.

Ceres is a national coalition of institutional investors and environmental organizations addressing sustainability issues including climate change. It also manages the Investor Network on Climate Risk (INCR), 50 institutional investors who collectively manage over $2.7 trillion of assets.

The groups says planners have not accounted for obvious changing weather patterns and meteorologists documented evidence that weather patterns are changing -- if only temporarily -- for the worse. The changes include rising global temperatures causing an increase in severe weather events, including hurricanes, floods, hailstorms, wildfires, droughts and heat waves.

"Insurers and regulators have failed to adequately plan for these escalating weather events that scientists predict will intensify in the years ahead due to warming global temperatures," the report says.

In other cases, the higher cost stems from an unfortunate reality -- people can flee, structures and business operations can't.

Building costs

The National Association of Home Builders (NAHB) says most of the 200,000 homes in the city of New Orleans alone are damaged beyond repair and after a prolonged clean up period will have to be rebuilt.

The rebuilding effort alone will dwarf rebuilding following any previous U.S. natural disaster but it will be crippled by immense demand, limited building and supply facilities, disrupted supply lines and a regional work force that will have moved on to jobs in the repair side of construction until new building can begin.

How much more it will cost consumers is anybody's guess.

Just before Hurricane Katrina consumers were finally settling into homeowners insurance premiums that had risen by double digit percentages in the early 2000s -- and it wasn't just hurricanes.

Cere's said:

  • In Texas, homeowners saw their premiums double after skyrocketing water-related mold claims -- $3 billion in 2002 -- caused dozens of insurers to stop writing or renewing homeowners policies.
  • Florida's 2004 hurricanes prompted seven private insurers to stop writing new homeowners policies this year or to exit the market, even after they'd won substantial rate increases.
  • Midwest crop insurance losses have grown 10-fold in recent decades and in the West, the average wildfire is twice as damaging compared to the 1970s.

It's only going to get worse.

To attempt to get a handle on estimating extra cost associated with home building, NAHB looked at increased costs following other disasters where the number of homes destroyed were never more than 28 percent of those destroyed by Hurricane Katrina.

  • July 1992 to September 1992, largely as a consequence of Hurricane Andrew, the average price for plywood increased from about $222 per 1,000 square feet to $321, and the price of Southern pine framing lumber rose from $264 per 1,000 board feet to $308, NAHB reported.
  • However, the hurricanes in 2004 did not trigger a similar increase, and prices actually fell during the relevant period, after soaring during the preceding year. A combination of greater (partly speculative) demand and disrupted supply produced a spike in lumber and panel prices in the final days of August 2005. With production already running at full capacity for wood panels, further increases for those products, as well as for roofing, are likely.

NAHB did offer some solace in that increases in building and material costs likely would be spread out over time.

Rebuilding after devastation does not trigger the same kind of mass production assembly line effort found in a new subdivision, tract or other development of homes. Instead, disaster recovery building occurs over much more time as each property owner moves to rebuild on his or her own time.

That was true in Dade County, FL after Hurricane Andrew in 1992, Alameda County following the Oakland Hills fires in 1991 and in Charleston, SC after Hurricane Hugo in 1989.

"Replacing units destroyed by the storm will not begin for many months and will take place slowly, over a number of years," NAHB said.

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