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Working Paper

Household Finance after a Natural Disaster: The Case of Hurricane Katrina

Little is known about how affected residents are able to cope with the financial shock of a natural disaster. This paper investigates the impact of flooding on household finance. Spikes in credit card borrowing and overall delinquency rates for the most flooded residents are modest in size and short-lived. Greater flooding results in larger reductions in total debt. Lower debt levels are driven by homeowners using flood insurance to repay their mortgages rather than to rebuild. Mortgage reductions are larger in areas where reconstruction costs exceeded pre-Katrina home values and where mortgages were likely to be originated by nonlocal lenders.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.


Suggested Citation

Gallagher, Justin, and Daniel A. Hartley. 2015. “Household Finance after a Natural Disaster: The Case of Hurricane Katrina.” Federal Reserve Bank of Cleveland, Working Paper No. 14-06R. https://doi.org/10.26509/frbc-wp-201406r