Financial Advisor Gil Baumgarten, president of Houston-based Segment Wealth Management, finds few negatives as he ponders various ways this calamity will play out in the financial markets. “I looked at the easy spots to identify, such as insurers like Allstate, and the stock has barely flinched. I see the Home Depots of the world, and surely this event will benefit home improvement stores, albeit regionally,” says Baumgarten.
One consideration that will play out gradually, he adds, is the possibility of credit downgrades of certain municipalities in these hard-hit regions. Just like people, towns and municipalities also receive credit scores which can affect all the taxpayers who live there.
Storms like Harvey can wreak havoc on municipal utility districts that issued bonds to put in roads and underground utilities. “Investors buy these bonds because they pay tax-free interest,” says Baumgarten. “In rare occasions, a district could be particularly hard hit and every home in the subdivision might flood.”
Baumgarten says the math might then argue for homeowners to simply walk away from the devastation and start over, which can cause problems making principal and interest payments.
“This type of event is very rare, and I would doubt that this storm will leave areas devastated for long,” says Baumgarten. The municipal market bounced back after Hurricane Ike, which hit Galveston County particularly hard in 2008. “Homes with mortgages almost always require flood insurance, so a rebound is usually just a matter of time,” he adds.
Baumgarten thinks the already blighted areas are likely to see an acceleration in redevelopment, since those areas often contain structures standing beyond their useful life. Many of those owners also don’t carry flood insurance. “While it pains me to see what these people will endure as a result of Harvey, this will free up property for fresh development, energizing property tax rolls and spurring business formation,” says Baumgarten.
“Clearly, the most direct and likely lasting response will be an immediate increase in residential rental rates,” says Baumgarten. “I have seen estimates of numbers of affected homes to be more than 100,000. Where will those displaced people live while they rebuild? There are not enough vacant apartments to accommodate that sudden need, and I can envision paths to a doubling of rental rates, at least in the short run.”
These types of events are agonizing, terrifying, and dangerous, but are part of living near the coast, says Baumgarten. “This will change the face of Houston going forward, and in many ways for the better,” he adds.
Segment Wealth Management is Houston’s seventh largest wealth manager with more than $1 million investment minimum according to the February 2017 Houston Business Journal. Gil has been named by Barron’s magazine as one of the 50 best advisors in Texas and most recently as one of America’s top 1200 Financial Advisors, while the Financial Times has named him one of the 300 best advisors in America. Segment is located at 3040 Post Oak Blvd., Ste. 1725. For more information, please call 713.800.7150.
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