CoreLogic, a leading provider of information, analytics and business services, reported today that the impact of the BP DeepWater Horizon oil spill on home values in the coastal counties along the Gulf coast communities is expected to range from $648 million over one year and to as much as $3 billion over five years for the communities already being impacted by the spill. If the unlikely worst-case scenario occurs and the spill reaches around the Florida Keys and up the Atlantic coast of Florida impacting beach amenities, the additional losses could reach up to $28 billion over five years.
In the coastal counties of Harrison, Mobile, and Escambia, there are more than 71,000 homes that will potentially be impacted. In addition, there are 15 major counties stretching from the Gulf coast of Mississippi to the Atlantic coast of Florida with more than 600,000 residential properties within 1,000 meters of the coastline.
The CoreLogic analysis relies on established methods for estimating environmental amenity values in general that take into account the annualized economic value of beach access in these coastal communities at risk of being damaged by oil coming ashore and beaches being closed to human recreational use for a period of five years. Buyers of homes in these coastal communities paid premiums when they purchased their homes for access to the beaches and the amenity benefits that they represent.
Specifically, CoreLogic used its public record and parcel data collected in the 15 at-risk counties and combined this with its proprietary geospatial coastline data that accurately identifies the geographic location of the shore. Based on a geospatial query of the public record data using the coastline file, more than 600,000 properties were identified as being within 1,000 meters of the coastline in 15 counties, representing major beach communities stretching from the Gulf coast of Alabama to the Atlantic coast of Florida. The approach, used in this analysis, to the valuation of environmental amenities was developed in the late 1970’s and early 1980’s and is a well-accepted technique for measuring the value that consumers place on a variety of different environmental and residential amenities. In this application, CoreLogic used hedonic price theory to estimate the perpetuity value consumers place on access to beach amenities as a function of distance (in meters) to the beach. The perpetuity value was then converted into an annual annuity value of beach access using the present value discounting approach for an annuity that pays into perpetuity. In this study, the duration was assumed to be five years, but the methodology estimated an annualized economic value, therefore, the five-year estimate is merely five times the annualized economic value of a single year. For example, the single-year loss estimate for the Gulf coast communities is $648 million. In addition to the loss estimates of the economic value of beach access, the already fragile housing markets in many of these communities are likely to experience further distress due to the potential impacts of the oil spill on local economies.
"Using well established economic techniques for the measurement of the economic value of environmental amenities an estimate of the loss in beach amenity value is substantial. While it is by no means a certainty that the major coastal communities along both coasts of Florida will be impacted at all by the oil spill, the lost amenity value in these markets could be particularly high," said Mark Fleming, chief economist with CoreLogic. “The total loss in amenity value in communities already being impacted by the oil spill to date is potentially as high as $3 billion over five years. Our hope is that the oil spill is contained and the loss in amenity value is further moderated by a speedy cleanup and a return of beach amenities to the affected communities’ homeowners.”
CoreLogic used its public record and parcel data collected in more than 3,100 counties across the United States and covering 99.8 percent of the U.S. population and combined it with its proprietary geospatial coastline file that accurately identifies the geographic location of the shore. Based on a geospatial query of the public record data using the coastline file more than 600,000 properties were identified as being within 1,000 meters of the coastline in 15 counties representing major beach communities stretching from the gulf coast of Alabama to the Atlantic coast of Florida. The approach, used in this analysis, to the valuation of environmental amenities was developed in the late 1970’s and early 1980’s and has been a popular technique ever since for understanding the value that consumers place on a variety of different environmental amenities. In this application we use hedonic price theory to estimate the perpetuity value consumers place on access to beach amenities as a function of distance (in meters) to the beach. The perpetuity value is converted into an annual annuity value of beach access using the present value discounting approach for an annuity that pays into perpetuity. Finally, we assume that the recreational value of beach access is restricted by the oil spill for five years to estimate the value of beach access at risk of being lost.
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About CoreLogic CoreLogic (NYSE: CLGX) is a leading provider of consumer, financial and property information, analytics and services to business and government. The company combines public, contributory and proprietary data to develop predictive decision analytics and provide business services that bring dynamic insight and transparency to the markets it serves. CoreLogic has built the largest U.S. real estate, mortgage application, fraud, and loan performance databases and is a recognized leading provider of mortgage and automotive credit reporting, property tax, valuation, flood determination, and geospatial analytics and services. More than one million users rely on CoreLogic to assess risk, support underwriting, investment and marketing decisions, prevent fraud, and improve business performance in their daily operations. Formerly the information solutions group of The First American Corporation, CoreLogic began trading under the ticker CLGX on the NYSE on June 2, 2010. The company, headquartered in Santa Ana, Calif., has more than 10,000 employees globally with 2009 revenues of $2 billion. For more information visit www.corelogic.com.
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