There is no simple or necessarily correct answer so I hope people will comment. Some ideas are pure conjecture or maybe better put an educated guess. There is no doubt that the devistation caused by Katrina is horific but the real estate market (and the economy as a whole) may benefit in the coming years.
Interest rates were already at a historic low. The Feds are unlikely to push rates up as the need for low cost money will help drive the economy as it rebuilds the south. The dent in the current economy will be boosted by the jobs, goods and services created by the rebuilding in future years. Low interest rates should continue to support our rapidly appreciating economy. Throughout the ecomomic recovery of the last few years, low interest rates pushed the real estate market to levels never seen before.
We already have a tight housing market and some people who lost everything in Katrina will relocate out of the south. We have already seen this starting to happen on the local news and with an agent in our office.
New construction home prices will rise. The cost of building materials and their transportation will drive prices up. Qualified contractors will not be short of work. We saw this on a smaller scale in San Deigo after the fires. While the victims moved out, the construction workers moved in.
I had a long conversation with a client a few days ago that started with his view of an likely crash. I think that changed as we talked.
Hmmm looks like you forecast wrongly, thinking that the fed wouldn’t raise rates because of Katrina. Of course they would to fight inflation (that is what they are all about) and they did by 1/4 pt. Their press release regarding the increase indicates they will raise rates again at their next meeting on Nov. 1. Credit is being tightened down. The inflating appreciation in Portland is being driven by bubble money from California. The only way people can stretch to buy California inflated prices at this point in the business cycle is through very risky financing (I/O etc) that relies upon appreciation. Then the sellers take that money and use it to push up prices in Portland. Obviously most Portland entry level locals cannot afford Portland inflated prices on their wages. When these California bubble money infusions stop, the party is over. And it looks like the California market has started to turn the corner. This latest interest rate hike will only accelerate the process.
I think you have a point in your original post that a natural disaster might actually be a boost to the economy. It decreases supply of housing and creates a shortage of trades people which increases prices. However, it also creates uncertainty in the market. Currently, people are paying prices for houses (and other consumer goods) like there is no tomarrow. What happens when people start thinking twice about whether they really need that new car or a bigger house. Natural disasters, increasing interest rates, rapidly increasing fuel prices, etc. etc. creates uncertainty. However, seasoned real estate investors I work with are investing like the market is going to continue indefinitely.