Risks caused by climate change are already affecting America's $55 trillion housing market, according to a new study from Intercontinental Exchange (ICE), a leading global provider of technology and data. Not only do most home buyers now take a property's climate risk into account when choosing a house.
But also, homeowners are increasingly becoming delinquent on their mortgages following a major climate event. Roughly 40,000 homeowners affected by Hurricanes Helene and Milton became delinquent on their loans in the months following those hurricanes, reckons the report.
Climate Change Concerns Among Home Buyers — By Age and Region
It may not be surprising that nearly 80% of Gen Z and Millennials nationwide worry about a prospective purchase's climate vulnerability. But they're not alone.
Roughly 70% of Gen X and Boomers have similar concerns, again nationwide. Does this suggest an erosion in the old generation gap between climate skeptics and believers?
"This change in borrower sentiment is consistent with what ICE Climate's research shows in the data," said ICE in an email. "Homes in high flood-risk ZIP codes have appreciated 0.2–0.4% slower per year on average over the past decade — a gap that could translate to roughly $31 billion in lost residential real estate value nationally."
There aren't enormous regional variations in climate change concerns. ICE found the percentage of home buyers sharing those concerns to be:
- Western borrowers — 78%
- Southern ones — 73%
- Midwest one — 84%
So, bottom line, there are significant majorities in the regions everywhere, but especially in the places most affected.
How Extreme Climate Events Affect Homeowners Insurance
Meanwhile, insurers are trying to claw their way back to profitability following major climate events, resulting in sharp increases in homeowners insurance premiums. And in some high-risk areas, many homeowners struggle to find any coverage at any price.
"Insurance companies citing the increasing risks and costs of climate-driven natural disasters — including fires, hurricanes and tornadoes — have lobbied state regulators into granting steep premium increases, squeezing all but the wealthiest homeowners and leaving many
under-insured, if they can find insurance at all," reports NPR.
One couple affected by California's recent wildfires told NPR their broker had struck out trying to find any willing insurer and had advised them to get coverage through their mortgage lender. They did, but it covers vastly less than their original policy.
"It’s a sign of how Los Angeles’s post-fire recovery has exemplified a much broader crisis facing the insurance industry in an age of climate volatility, raising troubling questions about the stability of home ownership and housing affordability — the bedrock of the American middle class," said The Guardian earlier this year.
An inability to get adequate (or maybe any) homeowners insurance coverage is bound to have a significant impact on home prices. And if insurers implement similar strictures in regions affected by other extreme weather events (flooding, hurricanes, tornadoes ...), we may look back on the 0.2–0.4% slower price appreciation per year of affected homes identified by ICE with warm nostalgia.
Climate Change and Mortgage Delinquencies
After a major wildfire event, the probability of late mortgage payments climbs by about 250% in the month following the disaster, according to ICE. However, within a year, that probability dives to around 0%.
Other major weather events also result in higher probabilities of mortgage delinquency, but dramatically lower than that of wildfires: an average of about 21% for tropical storms and 18% for flooding.
But wildfire victims recover more quickly, and after one year, have the lowest delinquency rate of the three categories of events. ICE found that mortgages on homes with an ICE Hurricane Score of 5 have a severe delinquency probability roughly 80% above a loan with a low hurricane risk.
"Mortgage performance can often signal early stress in local housing markets, while home price trends tend to reflect longer-term structural and socioeconomic shifts," says ICE. "Together, these two indicators provide distinct perspectives on how climate risk is impacting the U.S. housing and mortgage markets across different timescales and regions."
The Future
While some dispute their findings, most scientists expect the effects of climate change to intensify. And that could see more people being affected more badly.
The effects on the U.S. housing market and economy could also become more extreme. Homes across appreciable areas of the landmass could become uninsurable, and their owners placed at greater risk of health and financial impacts.
If that happens, some places that are currently thinly populated could experience large-scale internal immigration, while others, including some major metros, could see exoduses. And all this could have a major impact on the economy as well as the housing market.
Let's hope those scientists are wrong, but we worry that might be wishful thinking.
