Climate Change Could Slash Home Values By $1.5 Trillion, Report Says
As they say: Man plans, and Mother Nature floods his semi-basement. And climate change may melt home values along with glaciers.
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Climate change may melt home values along with glaciers.
As last month’s fires and last year’s hurricanes continue to rock and reshape Los Angeles and North Carolina, respectively, a new study published Monday from climate-research firm First Street places an estimate on just how much equity climate disasters could strip from US home values in the coming years — a whopping $1.47 trillion.
Higher Ground
As they say: Man plans, and Mother Nature floods his semi-basement. Even in an increasingly impenetrable housing market, home ownership remains a bedrock goal. For millions of Americans, that’s meant migrating to the supposedly more-affordable (and assuredly warmer-weather) pastures of the Sun Belt. According to a report published last year by real estate investment firm Clarion Partners, the Sun Belt accounted for 80% of population growth in the US over the previous decade. Clarion also found the region is home to 50% of the US population today and may house 55% by 2040.
But according to First Street, these are the states most prone to destructive climate events — facing an average of 7.3 major weather disasters in 2024 compared with just 4.3 in non-Sun Belt states. That means an economic storm could be brewing in the housing market:
- First off, with the increase in climate disasters, insurance premiums are spiking. In the past decade, insurance rates have gone from about 8% of the average mortgage payment to around 20%; by 2055, First Street estimates that unrestricted risk-based insurance pricing would drive a 29.4% increase in average premiums.
- That could lead to a mass migration out of Sun Belt regions, especially those outside highly attractive metropolitan areas. First Street estimates that 55 million Americans will voluntarily relocate to areas less prone to climate disasters by 2055; Of the roughly 84,000 census tract neighborhoods in the US, First Street says 26% are at risk of “climate abandonment” — or the sustained exodus of citizens amounting to a 38% population decline over 30 years.
Market, Go Up: It’s enough for First Street to estimate the $1.47 trillion knock to the current $50 trillion net worth of US homes. But if anything has proven more unstoppable than even climate change in the past decade, it’s home valuations. If home appreciation rates hold, the market could essentially beat, or rather diminish, the impacts of climate change by pure inertia. After all, a $1.5 trillion hit leaves a much smaller dent in $100 trillion than in $50 trillion.