Investor Alert

New York Markets After Hours

Dec. 15, 2020, 11:58 a.m. EST

Home buyers are starting to factor flood and wildfire risks into their real estate decisions — and it’s affecting price growth

Jacob Passy

On top of a pandemic and economic downturn, 2020 brought a spate of natural disasters that destroyed thousands of homes across the country. As climate change makes calamities like wildfires and hurricanes more intense and more common, homes values are starting to reflect the risks these disasters pose.

From Colorado to California to Washington state, dozens of wildfire complexes burned hundreds of thousands of acres across the Western region of the country, destroying thousands of homes in the process. Meanwhile, a record-breaking hurricane season saw 12 tropical storms make landfall on the U.S. coast, bringing with them devastating flooding.

And 2020 was not an aberration — though it may set records thanks to these wide-ranging disasters. As temperatures have risen, natural disasters like wildfires, hurricanes and floods are becoming more commonplace and destructive. Before this year, 2017 held the record for the largest losses caused by weather-related catastrophes across the globe, with a total economic loss of $438 billion.

A new analysis from Realtor.com shows that home buyers are beginning to factor concerns about our changing climate into their decision-making. As a result, homes in areas vulnerable to fires and floods could see weaker price growth.

“As the impacts of climate change and worsening natural disasters become more well-known, it’s natural for home shoppers to take these factors into account when deciding the purchase price of a home,” Realtor.com chief economist Danielle Hale said in the report.

Realtor.com examined flood risk data for the past five years from First Street Foundation, an organization that tracks flood damage. Researchers found that homes with a severe or extreme risk of flooding in coastal counties where a hurricane-related disaster declaration had been made in that time span only saw sales price growth of 25%. That was as much as 5% lower than homes will minimal or low risk of flooding.

The effect of floods on sales prices became more magnified in recent years. Back in 2014, only homes in 33 of the 78 counties analyzed had slower price growth if they were more at risk of flooding. By 2019, that was true of 44 out of the 78 counties.

Realtor.com also analyzed price data between 2014 and 2019 for homes in California to measure the effect of wildfires on price trends. Homes within a one-mile radius of a historical fire increased in price by 32% over that time, compared with 35% price growth for other homes in those same counties.

The severity of 2020’s wildfire and hurricane seasons could weigh on buyers’ minds in 2021 and beyond, further impacting prices. “Buyers are displaying an awareness of recent large hurricane events,” Sabrina Speianu, senior economic research analyst at Realtor.com, wrote in the report. “After the 2012 Hurricane season, where Hurricane Sandy and others caused the most property damage by value within five years, price growth for homes in severe to extreme risk areas fell behind lower-risk homes.”

Other studies have concurred with Realtor.com’s findings. A recent working paper from researchers at the University of Pennsylvania demonstrated that buyers’ interest in coastal property in Florida was waning, in part because of the risk of climate change-related rising sea levels. Another study concluded that climate-change deniers were propping up real-estate prices in waterfront communities, potentially magnifying the risks those property owners face.

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