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Home Shoppers Are Becoming More Concerned About Flooding Risk

Flood insurance costs increase

Flood insurance costs are rising as climate change impacts more regions of the U.S., becoming a bigger factor for buyers when they are making a decision about bidding on a home.

Prospective homeowners who are able to examine flood-risk information when they are searching home listings online will opt to look for and make offers on properties with less risk, real estate company Redfin (RDFN) said in a report last month.

Consumers are choosing homes whose flood risk is lower compared to people who do not have access to the data, according to a randomized controlled trial involving 17.5 million users over three months.

Redfin shoppers who viewed homes with an average flood-risk score of 8.5 (severe/extreme risk) prior to the study chose to make an offer on homes with an average score of 3.9 (moderate risk) or 54% less risk, according to the report.

The other people who viewed homes with an average score of 8.5 before the study and did not have access to the flood data decided to bid on homes with an average score of 8.5.

“We now have definitive evidence that the risks posed by climate change are affecting where Americans choose to live,” said Daryl Fairweather, chief economist of Redfin. “Equipping people with flood-risk information helps them make more informed decisions. Some will opt to move out of risky areas altogether, while others will stay put but invest in making their homes more resilient to disaster.”

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Where Home Shoppers Were Most Concerned About Flooding

People who live in Cape Coral, Florida and Houston were the most likely to click on the data, according to the report. This was followed by people in Baton Rouge, Louisiana, McAllen, Texas and New Orleans. Three other Florida metros areas – North Port, Tampa and Jacksonville – were also in the top 10.

Tampa, Cape Coral and North Port rank consistently on Redfin’s list of most popular migration destinations, which is an analysis based on how many more users are looking to move into an area than leave.

“As more house hunters become aware of climate risk, homes in endangered areas will likely receive fewer offers, causing home values to fall,” Fairweather said. “At the same time, we may see prices in lower-risk, inland areas rise as more Americans move there to avoid flooding.”

People who had access to the flood data over time sought to look at homes with less risk, Redfin said. The users who viewed homes with extreme risk before the study were viewing homes with 25% less risk than the control group after nine or more weeks in the experiment, compared with only 7% less risk during the first week.

“Climate-risk data may start to have an even bigger impact on homebuyer decisions now that the housing market is slowing and tilting more in buyers’ favor,” said Sebastian Sandoval-Olascoaga, a Massachusetts Institute of Technology researcher who contributed to the report.

“Today’s buyers have more leeway to seek out the home features they really want,” he said. “For some buyers that might mean considering only turnkey homes, and for others it might mean limiting their search to homes with minimal flood risk.”

The Federal Emergency Management Agency (FEMA) changed its pricing methodology for insurance premiums in 2021 as climate change impacts a larger percentage of U.S. homes. About 70% of homeowners are at risk of flooding that isn’t reflected in current FEMA flood maps, according to First Street Foundation, a non-profit organization.

Increases for Flood Insurance Premiums

The premium increases started going into effect for existing policyholders on April 1, 2022, impacting almost 90% of flood-insurance policyholders in Florida, Mississippi and Texas.

Homeowners can purchase flood insurance through a private flood insurance plan or through the NFIP, which is funded and backed by the federal government and overseen by FEMA.

During the pandemic, more people have moved into areas with climate risk compared to recent years because of home affordability and the ability to work remotely, Redfin said.

The 50 counties with the largest percentage of homes facing high fire and flood risk reported a population increase by an average of 3% and 1.9%, respectively, from 2016 through 2020.

People also bought second homes with high flood, storm and/or heat risk with an increase of 40% during the past two years.

The migration to these areas that could experience a flood or fire is not an obstacle to buyers - 63% of people who moved during the pandemic said climate change is currently an issue where they live or will be one in the future.

“From devastating floods in Kentucky and Missouri to deadly fires in California and brutal heat waves across the U.S., it’s clear that natural disasters are intensifying. Still, people are moving into risky areas,” Fairweather said. “When people decide where to live, they consider a whole host of things ahead of climate change, which has potential implications on their safety, home stability and finances.”

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About The Author:

Ellen Chang is a Houston-based freelance journalist who writes articles for U.S. News & World Report. Chang previously covered investing, retirement and personal finance for TheStreet. She focuses her articles on stocks, personal finance, energy and cybersecurity. Her byline has appeared in national business publications, including USA Today, CBS News, Yahoo Finance MSN Money, Bankrate, Kiplinger and Fox Business. Follow her on Twitter at @ellenychang and Instagram at @ellenyinchang.

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