Key facts
- A recent nor'easter may foreshadow increased weather risks for US homebuilders this winter.
- A strengthening El Niño is forecast to peak between October and December.
- While El Niño suppresses Atlantic hurricane activity, it can lead to other severe weather events.
- Wet job sites, wind, rain, and freezes can delay construction, damage unfinished work, and push back closing dates.
- Delays increase carrying costs for builders, including interest, taxes, and insurance.
- Severe convective storm losses in the US exceeded $35 billion through mid-August, despite a quiet Atlantic hurricane season.
A recent nor'easter that impacted the US East Coast may serve as an early indicator of the weather-related risks homebuilders could face this winter due to a strengthening El Niño.
AccuWeather estimated the storm caused $10 billion to $13 billion in total damage and economic losses. While El Niño typically suppresses Atlantic hurricane activity, it does not eliminate the housing sector's exposure to weather-related losses. A volatile winter could lead to construction delays, extended carrying costs, and increased insurance pressures, exacerbating existing challenges for builders such as soft demand, high financing costs, labor shortages, and tight margins.
The National Oceanic and Atmospheric Administration (NOAA) indicated that the strengthening El Niño has a 75% chance of becoming the strongest weather event since 1950, with its peak expected between October and December. Ian Giammanco, lead research meteorologist at the Insurance Institute for Business & Home Safety, noted that strong El Niño events often lead to reduced Atlantic activity while the Pacific becomes hyperactive. The Pacific had already produced 18 named storms by September 27, though none had made landfall on the US mainland.
Despite a slow Atlantic hurricane season, builders' weather exposure is not eliminated but rather redistributed. Wet job sites can delay essential workflows like grading, foundations, and utility installation. Wind, rain, and freezes can damage unfinished construction, postpone inspections, and push back closing dates. These delays result in builders continuing to pay for interest, taxes, insurance, and overhead on unfinished homes. Missed settlement deadlines can also impact private homebuilders' loan covenants and access to capital.
Giammanco suggested that the middle of the country could be a transition zone, with the northern third typically warmer than normal, while the South might experience enhanced winter severe storm threats. Florida, with its active construction pipeline, could be particularly exposed to severe weather during El Niño winters, potentially leading to delays and damage to exposed construction elements.
In the Mid-Atlantic and Northeast, temperature fluctuations can alter storm precipitation, complicating logistics and increasing risks from frozen pipes and inaccessible roads. The West Coast might see wetter conditions, potentially delaying rebuilding efforts in wildfire recovery areas and causing debris flows in burn scars.
While fewer major hurricane losses might ease pressure on insurance capacity, the impact varies by carrier. National insurers can spread losses, but regional carriers may face greater strain from repeated storms. Gallagher Re estimated that US severe convective-storm losses, including hail, tornadoes, flooding, and wind damage, exceeded $35 billion through mid-August. This figure places the year on pace for another high-loss year, following $51 billion in insured losses in 2026 and $54 billion in 2024, despite a quiet Atlantic hurricane season. The year 2023 saw a record $66 billion in insured losses from severe convective storms.
Recurring claims from windstorms, such as those from a Midwest derecho in August, contribute to accumulating losses, described by Giammanco as "death by a thousand paper cuts." These claims can maintain pressure on insurance rates and deductibles. Although less hurricane activity might improve coverage availability for builders in some markets, it does not guarantee lower premiums or relaxed underwriting standards.
Construction contracts often include weather allowances based on historical patterns, but exceeding these allowances can lead to additional fees for contractors, increasing overall construction costs. Extended wet periods can disrupt deliveries and inspections, while cold weather in snowy regions may necessitate temporary enclosures and heating for concrete work, further accumulating costs and squeezing builder margins.