Hurricane Milton has left a lasting impact on the Florida housing market, with major cities like Orlando, Tampa, Lakeland, Sarasota, and Daytona Beach bearing the brunt of the storm’s fury. As recovery efforts swing into action, analysts are predicting a substantial hit to the state’s homebuilding sector, with estimates ranging from $1.7 billion to $2.5 billion, according to a report from Goldman Sachs analyst Susan Maklari.
The report dives deep into the potential challenges facing homebuilders operating in the affected regions. The storm’s aftermath is expected to result in delays to construction and home closings, impacting the ability of builders to meet their deadlines and maintain their projected timelines.
Several major homebuilders, including PulteGroup Inc., Lennar Corp., and D.R. Horton Inc., hold substantial investments in the impacted areas. These builders, who account for a significant portion of the Florida housing market, face the daunting task of navigating the complex recovery process while adjusting their operational strategies. For example, PulteGroup, Lennar, and D.R. Horton had 17%, 14%, and 11% of their 2023 closings concentrated in the storm-affected areas, respectively.
On the other hand, homebuilders like KB Home and Toll Brothers, with a significantly smaller presence in these regions, might experience a less severe impact, with their exposure to the storm’s damage limited to less than 3% each.
Historically, severe weather events in Florida have resulted in delays of approximately 4 to 6 weeks for homebuilders, primarily due to the reallocation of resources to recovery efforts and existing labor shortages. However, given the magnitude and scope of Hurricane Milton, coupled with its timing just two weeks after Hurricane Helene, Maklari anticipates that these delays could be further extended.
Maklari acknowledges that while some closings might be postponed, it’s largely a matter of timing. Any shortfall in the fourth quarter is projected to be compensated for in early 2025.
Fortunately for homebuilders, many homes are in advanced stages of construction, aiming to meet year-end targets. Moreover, most builders tend to avoid constructing in floodplains, mitigating the risk of significant damage. Goldman Sachs estimates the overall industry impact to range between $1.7 billion and $2.5 billion, based on historical data regarding delays and local median home prices.
The report also provides a detailed look at the situation in the Orlando and Tampa metropolitan areas, two of the hardest-hit regions. In Orlando, D.R. Horton dominates the market, with 2,351 closings in 2023, representing a 16.7% market share. Following closely is Lennar Corp., with 2,242 closings and a 15.9% share.
Tampa presents a slightly different scenario, with Lennar holding a larger presence, boasting 3,570 closings, accounting for 28.7% of the market. D.R. Horton follows with a 21.6% share.
Beyond the immediate impact on homebuilders, the report sheds light on the broader building products sector. While the sector is expected to experience a relatively muted response, demand for materials such as roofing, flooring, and insulation is likely to be spread out over several months.
Goldman Sachs doesn’t anticipate a substantial increase in overall product volumes. However, the short-term need for repairs could lead to temporary surges in activity.
When it comes to damage to existing homes, the extent of destruction is determined by the specific characteristics of the storm, such as wind speed and flooding levels. Roofs, windows, and siding are typically affected by wind damage, while floors, wallboard, and insulation are susceptible during flooding events.
Key players in these product categories include:
*
Roofing:
Owens Corning Inc., Carlisle Companies Inc.*
Windows:
JELD-WEN Holding Inc.*
Siding:
Louisiana-Pacific Corp.*
Flooring:
Mohawk Industries Inc.*
Insulation:
Owens Corning Inc., TopBuild Corp., Installed Building Products Inc.Maklari emphasizes that reconstruction demand typically stretches over several months, with cleanup and insurance claims processing often delaying actual repairs. The full rebuilding efforts could take anywhere from 4 to 6 months. For instance, Owens Corning reported that Hurricane Ian in 2022 resulted in 4 million squares of roofing damage, representing roughly 2.5% of their annual roofing shipments.
While Goldman Sachs doesn’t foresee a sharp increase in overall building product volumes from Hurricane Milton, they expect a “pull-forward” in demand. This suggests that short-term rebuilding activity might be strong, but it won’t significantly impact long-term volumes. As a result, revenue comparisons could be uneven as the industry transitions past the initial recovery phase.
