How Natural Disasters Affect Property Markets

Zillow's New Move: Why Climate Scores Could Reshape Property Values 🏠 The world's largest real estate platform just added climate risk scores to every listing. Why? Because 80% of buyers now demand this data before purchasing. This isn't just another website update - it's a major market signal about the future of property values. Let's decode what this means: 1. The Market Reality • Insurance costs up 50% in high-risk areas since 2020 • Over half of listings face extreme heat exposure • 17% at major wildfire risk • 13% at major flood risk 2. The Buyer Shift • Climate data now essential to purchase decisions • First-time buyers prioritizing long-term climate safety • Insurance availability becoming deal-breaker • Risk scores affecting property negotiations 3. The Investment Impact 💡 • Banks updating lending criteria • Property values shifting based on risk exposure • New market for climate-resilient upgrades • Insurance companies restricting coverage in vulnerable areas Here's why this matters: When climate risk becomes visible on every property listing, it forces the market to properly price these risks. This could trigger the largest repricing of real estate assets in modern history. Question for real estate professionals: How are you preparing clients for this new reality where climate risk directly impacts property values? #RealEstate #ClimateRisk #PropertyValues #MarketSignals

Very interesting piece of research conducted by the Federal Reserve Board Dallas, NYU Stern School of Business and Rice University using CoreLogic's predictive Climate Risk Analytics (hazard, geospatial and resiliency science) and 2 more information service powerhouses, S&P Global and ICE. Well worth a read. Available at SSRN:  https://lnkd.in/grKJGWTp Heavyweight research conducted by Shan Ge (Assistant Professor at NYU Stern), Stephanie Johnson (Assistant Professor of Finance, Rice University) and Nitzan Tzur-Ilan (Research Economist Federal Reserve Bank of Dallas) The research paper continues the research into the intersection of natural disasters, mortgage markets, and insurance premiums. As temperature increases' intensify the frequency and severity of natural disasters, homeowners’ insurance premiums are rising sharply. This study investigates how increasing insurance premiums influence mortgage delinquencies and prepayments by leveraging a novel dataset linking insurance policies to mortgage outcomes of 6.7 million borrowers. The analysis shows that higher premiums significantly elevate the chances of mortgage delinquency and prepayment. These findings are robust to using an instrumental variable for premium increases. The effect of delinquency is more pronounced for mortgages with higher loan-to-value ratios, while the prepayment effect is smaller for these loans. Additionally, we find that delinquency effects are present in both GSE and non-GSE mortgages, implying risks for both the Federal Government and the private financial sector. The paper also points to the risks that rising insurance costs pose for mortgages and mortgage-backed securities. Delinquencies represent negative shocks for mortgage holders, a significant portion of the financial sector. Thus, our findings not only illustrate the direct impact on households but also uncover broader implications for financial stability as insurance costs rise due to climate change. For policymakers addressing the issue of insurance affordability, the findings carry critical implications. The results suggest that escalating insurance premiums are severely limiting household liquidity, driving some into mortgage delinquency. Given the broader economic consequences of mortgage defaults, our research underscores the potential value of policy measures like means-tested insurance subsidies to mitigate these effects. Patrick Dodd Devi Mateti Jayme (Poladian) Beck Howard Botts Mahmoud Khater George Gallagher Hallie Nester, M.S. Jennifer Castenson Robin Wachner Kristie Vainikos Stegen Kent David Lance Lambert Joe Francica Amy Gromowski Paul Gaspar Srinath Ravulaparthy Robin Sun Pete Lumbert Mark Weaver Mark Gongloff Selma Hepp, PhD David Claussen, PhD Clayton Collins Peter Carroll Diego Sanchez Malliga Krishnan GAICD Tim Lawless Eliza Owen Jennings Anand Singh Chris Hatter

Everyone talks about rising seas. No one talks about sinking portfolios. For decades, mortgage lending worked because the risks were stable—or at least, priced that way. Homeowners had insurance. Property values went up. Defaults were rare. But that’s fiction now. Climate: The Sixth “C” of Credit, First Street’s new report, shows what really happens when disasters hit uninsured homes: they default. Fast. Flooded properties outside FEMA zones are 52% more likely to end in foreclosure than those inside. The catch? Outside the zone, flood insurance isn’t required. So the losses fall on the borrower. And then the bank. After Hurricane Sandy, lenders took on $68 million in losses they didn’t see coming. Not because the data wasn’t there—because the model wasn’t. Now picture that at scale: First Street projects $5.4 billion in climate-driven mortgage losses annually by 2035. That's not tail risk. That’s default as design flaw. (See "The 13th National Risk Assessment Climate, The 6th “C” of Credit") The mortgage system was built on five C’s of credit. It’s time to add a sixth: climate. Because we’ve been underwriting the past, while the future floods the basement. #ClimateRisk #MortgageDefaults #CreditRisk #FloodInsurance #ResilienceFinance #UrbanPlanning #InsuranceCrisis #FinancialStability #SixthCOfCredit

Property insurance rates are about to rise sharply, and the shift is happening faster than many realize. Reinsurers, who back up primary insurers by sharing their risk, are adjusting their pricing models as climate risks grow more severe. New disaster risk models—like a recent update from RMS—are signaling increased losses for high-risk areas, particularly along the Gulf Coast, Florida, and Texas. These models anticipate more catastrophic events, and reinsurers are responding by raising their rates and tightening contract terms. This will have immediate effects. As reinsurers demand more from primary insurers, those companies will either pass along the costs to homeowners or pull out of markets entirely. We’re already seeing this in states like Florida and California, where premiums have surged by more than 40% in some areas. It’s a domino effect. Reinsurers need to protect their capital, insurers need to manage their risk, and homeowners are left with fewer and more expensive insurance options. In some cases, they’ll choose to go without insurance altogether—betting that federal disaster aid will cover them in the event of a catastrophe. This isn’t sustainable. As urban development continues in high-risk areas, the risks will only multiply. Insurance, which has historically helped homeowners bridge the gap between crisis and recovery, is becoming prohibitively expensive. We’re heading into a new phase where risk assessments are reshaping the entire market for coastal real estate. The question isn’t whether the insurance market will adapt—it’s how fast, and at what cost to those living in vulnerable areas.

Call it the perfect storm 🌀. 🔥 It’s not because of tariffs (yet), but home insurance premiums have increased by 14% 😰 over the past year… on top of several years of double digit increases. 💰 In Southwest Florida, they’re expected to quadruple over the next few years… and are weighing on home value growth which has turned negative 📉. ⚖️ And there’s a small but growing cohort of homes for which property taxes + insurance is now **more** than the mortgage payment itself. Financial markets aren’t the only thing underwater this week ⛈️ . Communities across the Kentucky River watershed are just starting to clean up after days of record flooding. Like communities in Los Angeles, Tampa Bay, and Asheville over the past few months — recovery will start soon enough. In the most favorable of economic environments, rebuilding after disasters is costly. Even more so right now. Construction materials and labor costs tend to surge in the months immediately following natural disasters. 2/3 of the construction laborers who rebuilt New Orleans in the year after Hurricane Katrina were immigrant workers 👷. 🔶🔶 Many homebuilding materials are currently exempt from the latest round of tariffs: Will they be a permanent carve out from the emerging new trade order? Equally important: Will the construction labor even be around? 🔶🔶 Home price appreciation is slowing due to high long-term interest rates, but owner maintenance costs are rising too — and potentially property taxes on top of that as state and local governments seek to offset lost revenue from reduced federal transfers. 🔶🔶 The real estate market could quickly find itself in a unique situation where property taxes, insurance and maintenance costs are rising faster than values — a real decline in real estate prices even if nominal price gains remain in positive territory.🔶🔶 Few experts are as thoughtful on property insurance as the team at Moody’s. Their recent podcast (from mid March) on how property insurance markets are adjusting to new wildfire and flood risks is especially timely right this week. Listen here 👇   - Moody's: https://lnkd.in/g-iB3tkn - Spotify: https://lnkd.in/gb2qUqde - Apple: https://lnkd.in/g_pfcRZy #economy #realestate #LIPostingDayApril

Markets speak louder than climate models. Even before the recent fires in LA State Farm, Allstate, and other insurers had stopped selling new home policies in California, citing the growing risks of wildfires. In the devastated Palisades area, 69% of homes lost their insurance before disaster struck. Some may have signed up for the state’s limited fire insurance program (FAIR) and some may have been without insurance. Now the FAIR plan faces $5.9B in potential Palisades claims. Insurance companies spread their risk by buying their own insurance (reinsurance). FAIR's $2.5 billion backup plan falls short of the $5.9 billion they might need to pay out. This funding gap means delayed payments and costlier coverage for homeowners. We see this playing out in Houston where Homeowners are paying $3,740 annually for insurance - nearly 3X the national average and 60% higher than the Texas state average. This is the new reality for climate-vulnerable cities. Our once-vibrant communities aren't just facing environmental risks—they're becoming financially untenable. When insurance becomes unaffordable, thriving neighborhoods transform into ghost towns—first by natural disaster, then by financial impossibility. Image credit: GZERO Ico Oliveira. Cost of climate disasters showing up in the cost of home insurance. #LAfires #Insurance #climatetech #climatechange #climateVC #venturecapital

A report by First Street, a Galvanize Venture and Growth portfolio company, warns that $1.5 trillion in U.S. home values could be wiped out due to climate change-driven flooding, wildfires, and extreme weather. This isn’t a future problem—it’s already reshaping real estate markets, insurance costs, and investment strategies. As insurers and lenders adjust risk models, real estate markets in high-exposure areas will face declining property values and rising costs, making home ownership more expensive and less feasible for millions of Americans. Climate change isn’t just an environmental risk—it’s an economic one and the energy transition is more urgent than ever. The Wall Street Journal: https://lnkd.in/eeXET-ME

Weekly Monday Sustainability Post: Climate change will reduce real estate value in the near-term with a recent study putting it at $1.47 trillion lost in the next three decades. Some areas will suffer more than others. For example, some counties in California, Florida, and Texas will experience net declines of 10% to 40% in their property values by 2055. In addition to property values going up, insurance premiums are set to increase. There's an estimated 4X premiums increase in Miami, 3X in Jacksonville, Tampa, and NOLA, and 2X in Sacramento (see graphic with this post). Nationwide, insurance premiums will increase an average of 29.4% by 2055. This is comprised of a 18.4% correction for current underpricing and an 11% increase from growing climate risks. Some areas will benefit. Other properties across the country will see an increase in $244 billion. They'll also see more people coming in as 55 million people migrate away from extreme heat, wildfires, and flooding. This year alone is expected to see 5 million people move. Areas expected to see domestic climate migrants are northern, currently less-populated areas from Montana to Wisconsin and in parts of the East. With nearly two-thirds of U.S. adults being homeowners (including myself likely in the near-future), this is scary news. You can't just assume your property values will go up. The ramifications of climate change need to be considered when buying. People are starting to wake up. Zillow found that 73% of home buyers said at least one climate risk impacted where they shopped for a home. For more information, check out the First Street's 12th National Risk Assessment linked to in the comments. Note that the report hasn't been peer-reviewed, and there are important caveats and uncertainties associated with the work since it combines results from multiple models and peer-reviewed studies. The models don't account for climate adaptation measures and don't include inflation. These results are best used to identify locations that are most at risk for climate change-related increasing insurance costs, property devaluation, and population change. #realestate #climatechange #insurance