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Natural Disasters and Real Asset Prices: What Can We Learn From Tornados?

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Abstract

Tornados’ impacts on real asset prices have not been extensively explored in a causal analysis framework. We estimate the effects of damage from a major tornado in Little Rock, AR on prices of nearby non-damaged residential real assets. We study how a typical home’s proximity to damaged properties might have led to a discount in the price of the subject property due to blight in the neighborhood. We focus on homes that sold between January 2022 and August 2024, and compare the effects of the March 31, 2023 tornado on sale prices for homes near versus far from damaged houses. For homes within 250 meters from a tornado-damaged home, our difference-in-differences estimates imply an average discount of 29 to 35 percent for all home sales, relative to those homes further away. These effects attenuate with greater distance from the damage points. The presence of additional damaged homes nearby lead to a significant house price discount in the range of 8 percent (within 250m) to 2 percent (within 500m). There is no additional significant discount for homes in lower-income Census block groups, implying homeowners who live in lower income neighborhoods do not perceive different real asset price effects of nearby tornado damage than other homeowners.

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  • Jeffrey P. Cohen & Violeta A. Gutkowski, 2024. "Natural Disasters and Real Asset Prices: What Can We Learn From Tornados?," Working Papers 2025-001, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:99461
    DOI: 10.20955/wp.2025.001
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    Keywords

    residential real asset prices; tornadoes; inequality;
    All these keywords.

    JEL classification:

    • R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General

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