- US home values could collapse as climate change boosts insurance costs, a study from First Street Foundation said.
- More insurers are hiking premiums or leaving at-risk areas, forcing homeowners to rely on costlier state-run programs.
- First Street estimated that 39 million homes are still insured at prices that don’t match the climate risks they face.
Climate change is roiling the US home insurance market, paving the way for a massive correction in property values, a First Street Foundation study said.
More insurers are hiking premiums or reducing exposure in risky areas, forcing homeowners to rely on costlier state-run programs. But even then, 39 million US homes are still insured at prices that don’t match the climate risks they face, First Street estimated.
“This one quarter of all properties represents the current Insurance Bubble of properties likely overvalued due to the underpricing or subsidization of climate risk in their insurance products,” the report said, noting that almost no part of the US is left untouched.
While the cost of climate-related disasters like floods and wildfires has been soaring, some states continue to limit increases in insurance premiums.
In response, top insurers have slashed coverage, forcing governmental “insurer of last resort” programs to step in, often providing less coverage at multiple times the price.
Either way, insurance costs are rising, and First Street estimated the impact they will have on a home’s value by way of its income potential.
For example, a home in California currently valued at $296,000 would see a 39% drop after repricing for estimated insurance risk. A home in West Palm Beach, Florida, could lose 41%.
In Louisiana, a home could see a 48% plunge in value, and in Plaquemines Parish, a home could even lose 100% of its value.
“The range of property value loss for those 39 million properties is large, ranging from as little as a single dollar to full devaluation with 100% decrease in overall investment value. Those most at risk are property owners that are already stretched to be able to pay for the mortgage and associated costs, even before accounting for the forthcoming increases in insurance,” First Street wrote.
Prospective home buyers have taken notice of the climate’s effect on the housing market. More than four-fifths of house hunters are taking climate-related risks into consideration when looking for a home, according to a recent Zillow survey.
Still, despite the climate risks, the housing affordability crisis has boosted migration to areas vulnerable to floods, wildfires, and extreme heat.