The phone call was short and to the point: A buyer who had agreed to spend $500,000 (U.S.) on a beachfront home with a stunning view of the Gulf of Mexico was backing out.
The cancelled sale was a blow to real estate agent Linda Henderson, but it wasn't a surprise. Globs of thick, pungent oil are washing up on the shores of Alabama's Dauphin Island, and the smell on some days is enough to drive the island's predominantly senior population back into their homes.
It's also enough to drive real estate agents to despair. "I can tell you that things have pretty much dropped to dead," she says. "We were on track for our best year since Katrina. This is devastating - you can say that the spill killed the real estate recovery."
The end of the recovery is a particularly frustrating development for the Gulf Coast states of Louisiana and Mississippi, where foreclosure rates have consistently been among the lowest in the country. The region's relatively tight mortgage rules kept a lid on home prices during the housing bubble and prevented the boom-and-bust pattern seen in many other regions of the U.S. But just as prices were stabilizing and sales were increasing, the spill has brought activity to an abrupt halt.
"What the housing recession and Great Recession couldn't do to property values along the Gulf, this could easily accomplish," said real estate analyst Jack McCabe of McCabe Research and Consulting in Deerfield Beach, Fla. "It's a knockout punch, plain and simple."
As oil rigs shut down for at least six months and industries ranging from fishing to tourism wrestle with an uncertain future, real estate agents wonder how long out-of-work fishermen, oil rig workers and tourism providers can keep making mortgage payments. If they stop paying their bills, foreclosure rates could march higher. Prices may fall as banks auction properties to make back what little money they can.
There are about 120 houses for sale on Dauphin Island, a picturesque sanctuary that President Barack Obama used as a backdrop to one of his coastal visits. Many were put up for sale before a BP PLC rig exploded in the Gulf in April and began spewing an estimated 60,000 barrels a day into the water.
Most of the properties on the tourist-friendly island are listed at around $400,000 (U.S.), but no one knows what they're worth now as buyers consider the impact the oil spill will have on its sandy beaches.
CoStar Group Inc., a commercial real estate analysis company based in Maryland, examined previous oil spills and hurricanes and concluded that prices were likely to drop 10 per cent along the Gulf Coast because of the spill. It estimated losses may hit $4.3-billion along the 966-kilometre shoreline that stretches from Venice, La., to Clearwater, Fla.
But any estimate is a guess, said University of Alabama Donald Epley, a real estate professor.
"We don't know anything right now," he said. "We don't know how stigmatized the oil will make properties. We don't know how much will land onshore, we don't know how many people will be out of work and how many of them will default on their mortgages."
Ray Gonzales isn't waiting for any official release. Every day the Century 21 agent in Biloxi, Miss., crunches his own numbers, using the state's Multiple Listing Service.
Sales weren't affected through the first month of the spill, he said, but the phones have suddenly stopped ringing as uncertainty lingers about the cleanup effort. The broker said values dropped 10 per cent along his stretch of Gulf Coast, as would-be buyers backed away from what could be an oil-slicked coast.
It doesn't help that the federal tax credit for home buyers ended in May, further reducing demand.
"We get a lot of retirees from the Midwest coming down here for retirement homes this time of year," he said. "They aren't coming. They are cancelling, because they're waiting to see how this plays out, and they account for about 35 per cent of the market."
BP said recently that it would pay for property damage caused by the oil "as contemplated by applicable laws and regulations," but homeowners could find it impossible to make a claim under current legislation unless they actually sell their house at a loss.
The oil giant said Monday it has spent $2-billion in two months trying to contain the spill and compensate victims, including $105-million paid out so far to 32,000 claimants. It has also set up a $20-billion fund for residents and businesses affected by the spill.
Mr. McCabe noted that while BP said that it would honour "legitimate" claims, that leaves much to interpretation. It's unclear how far inland potential claims could reach, and whether homes would have to be sold before owners could be compensated.
"I'm not sure there's enough money out there to take care of all those claims that will be coming in," he said. "How would you calculate the decrease? If your $2-million condo is only worth $100,000 all of a sudden, who decides how much you should be compensated?"