Redfin’s chief economist and First Street’s head of research give homebuyers advice on how to think about climate disasters, insurance and home values when deciding what to buy
Natural disasters are increasingly threatening to the housing market, as many homes are at risk of becoming damaged, uninsurable or less valuable. Redfin’s research has shown that despite this, people are continuing to move into climate disaster-prone areas, often because they’re more affordable or in desirable, sunny climates near bodies of water. Migration into the country’s most flood-risky counties has more than doubled since 2020. Phoenix—which faces climate threats such as drought and heat—is continuously one of the most popular migration destinations. Phoenix had record-breaking high temperatures this June, and other parts of the Western U.S. also faced unseasonably extreme heat ahead of the summer.
Climate risk score data is one of the ways homebuyers can educate themselves on the implications of buying in disaster-prone areas. Every property on Redfin.com has Risk Factor data provided by First Street to show how likely a home is to face flood, fire, heat, wind damage or poor air quality. A Redfin study showed that people with access to flood-risk data, for example, bid on lower-risk homes, which means that information around climate threats is an important part of the homebuying process. We spoke with our chief economist Daryl Fairweather along with First Street’s Head of Climate Implications Research Jeremy Porter to better understand how homebuyers should consider these risks when deciding where to buy a home this summer.
Daryl Fairweather, chief economist, Redfin
Why should homebuyers care about climate risks when searching for a home?
Homebuyers should always educate themselves about where they’re looking to live, and considering climate risks has become increasingly important as climate change evolves. It’s no longer just about considering the odds that your home might flood or sustain wildfire damage and what that could mean for your quality of life. A new result of climate risk is that you might struggle to find affordable insurance, or your home might not be insurable at all. More than ever, there could be major financial implications to buying a home in a climate-risky area.
How heavily should homebuyers weigh climate risk when deciding where to live?
Homes are historically unaffordable right now with high prices and mortgage rates. The U.S. is also in a housing supply crisis and short millions of homes, so there’s little hope for lower prices anytime soon. There is already a lot for homebuyers to consider during this difficult time to buy. However, what homebuyers might not realize is that climate threats could dramatically impact their finances during an already challenging time. For example, homeowner’s insurance premiums increased 21% from May 2022 to May 2023, and that jump in Florida was 35%. State Farm is no longer writing policies in California, and other major insurers have pulled out of states facing climate threats. The federal government can’t always pick up slack when private insurers leave, and even when a homeowner gets money to pay for damage, there’s a cap.
There is a crisis underway in the home insurance market. How do you think it will play out, and what do you think the impact will be on housing?
Climate change is making it more costly for insurers to cover homes, as homes are increasingly more expensive and natural disasters are becoming more extreme and frequent in certain areas. These factors make the likelihood of claims higher for insurers. At the same time, the cost to repair and replace already-expensive homes is increasing with inflation. Inevitably, this means that insurance premiums will increase, coverage will decrease, and more homes will become uninsurable. This will increase the risks of homeownership and the costs for homeowners in climate-risky areas.
How should homebuyers be thinking about insurance in climate-risky areas?
Homebuyers should research what insurance costs for the home they’re interested in buying. Each home on Redfin.com has an insurance range estimate to give homebuyers a general sense of what they might pay, but it’s important to ask around for quotes knowing that they might vary. The cost of insuring a home can differ greatly even within the same neighborhood. Homeowners should also be ready for their premiums to increase in the future, knowing that it may be difficult to predict by how much. That uncertainty makes the cost of homeownership riskier as the frequency of climate disasters increases.
Will climate change impact home values or prices?
Yes. One way to think about this is that when the weather changes in a particular area due to climate change, the value of homeownership will change as well. On top of that, homes are an investment, and if the cost of an investment goes up because of increased maintenance due to climate change, that would dampen a home’s value. Consider if a home consistently suffers basement flood damage due to the home being in a flood zone. That known annual cost will eat away both at a home’s desirability and value.
Besides looking at risk scores, what other measures can homebuyers take this summer to make sure they’re educated on climate risks?
Buyers and homeowners should research the cost of maintaining their home and hardening it for the climate. For example, look into how much it costs to to repair a roof damaged by wind, hail or fire. It’s always better to budget for these costs and prepare instead of waiting for a disaster to hit and then dealing with the aftermath. Another tip is to research how much it would cost to landscape a yard for added flood protection. There are tons of resources online on how to safeguard your home from some climate disasters, and taking these measures might also increase the value of your home.
Jeremy Porter, head of climate implications research, First Street
How does First Street determine which types of risks are most threatening to a property?
One of the most obvious ways to think about that risk is through an understanding of direct damage to the property. In that case, flood, fire and wind risk are all very important to understand since they cause a significant amount of damage to and are closely tied to insurance regulations and requirements for homeowners. In determining the risks that are most threatening to a property, First Street uses an Average Annualized Loss (AAL) metric as that gives us the most direct translation from hazard risk to damage that could be caused should there be an exposure.
The other way to look at risk is to focus on the indirect consequences to the properties value, community, and larger socioeconomic context. Climate hazards such as heat, air quality and drought are the most impactful here, and frequent exposure to low impact flood events (nuisance flooding) has also been linked to these indirect effects. There are a number of ways to measure these indirect effects, but they all center around an area’s decreasing quality of life as these exposures increase. Extreme heat and poor air quality requiring outdoor work to halt, schools to be closed, or recreational activities to be canceled are all examples. Additionally, we are starting to see an increase in the conscientious decision of homebuyers to move to areas with relatively less risk. As we see that, we are seeing direct impacts on property values, tax revenue allocations, population vulnerability and commercial viability.
There are a variety of different First Street risk scores for each property on Redfin.com, but should some be weighed more heavily than others?
In the case of damage, floods are nationally the most impactful hazard, but along the Gulf Coast winds are more important, just as wildfires are more impactful out West. We are also beginning to see a prioritization being given to the maximizing of quality of life. If that’s the case, homebuyers would likely prioritize things like air quality. In short, all of the risk scores provided are important in determining an area’s risk to climate exposure.
On the surface, heat risk doesn’t seem as destructive as fire or flood. How important is it to consider heat risk when thinking about where to live?
As we continue to see increasing temperatures moving into the future, heat is going to become increasingly problematic. It is already the most dangerous of all climate exposures from a mortality perspective, as more people are killed by heat exposure than wildfires, floods and hurricane winds. It directly impacts our quality of life due to some of the reasons mentioned above, but we are also starting to see extreme heat drive people out of some areas. It is only happening in places where there are already other strong push factors (lack of jobs, poor schools, etc.), but among those places, areas with higher exposure to extreme heat are losing population at a faster rate than those without.
Are there any parts of the country that seem more climate resilient than others?
Ultimately, every region of the country has climate risk, and residents should be aware of those areas’ risks and how they are likely to change in the future. There are a number of areas that are adapting to their own climate risks in ways they hadn’t in the past. For instance, building codes in CA and FL are becoming more stringent and directly tied to climate risk. There are also areas like the Midwest which have relatively fewer risks. However, even in those areas we are seeing increases in extreme precipitation.
Are there any emerging risks to be aware of that don’t yet have risk scores?
One example is drought. Drought is directly related to climate and impacts huge geographic areas of the country. We’ve been able to manage drought with water rights and accessibility plans, however, we are starting to see indications of stress at the municipal level where cities are denying new building permits and residents are increasingly being put on water restrictions. This trend is expected to continue for some regions of the country moving into the near future.
The indirect impact of climate exposure is growing as an area of understanding. We are just starting to get a handle on the indirect impacts of risk on population change, property value impacts and many downstream implications.
