Global warming’s toll on housing
If it feels like natural disasters are becoming more extreme and frequent, it’s because they are.
Climate change has raised the earth’s average temperature faster than at any point in history, causing intensified weather events and subsequent property destruction. As the elements continue to escalate, they will alter how and where we buy and build houses.
Accounting for global warming when making a home-buying decision isn’t limited to the coasts, either — climate change affects people everywhere, just in different ways.
So, how can you factor in climate risk when buying a new home? Here are some expert tips to help borrowers assess the potential risks and mitigate damages.
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Severe weather events lead to serious housing risks
Catastrophic weather events are occurring more often, leading to big costs and insurance premiums for many homeowners.
Billion-dollar natural disasters multiplied over the past four decades, according to the National Oceanic and Atmospheric Administration (NOAA). They more than quadrupled from the 1980s to the 2010s, and surged even more in the 2020s.
No. of billion-dollar natural disasters per year (avg):
1980s: 3.11990s: 5.52000s: 6.72010s: 12.82020: 222021: 20
“It’s only going to continue to increase. Unfortunately, we as humans are not doing enough collectively to reduce our carbon footprint and to make the situations less severe,” said Danetha Doe, columnist at OZY Media and former economist at Clever Real Estate.
Further, the 13 largest natural disasters in 2021 caused $56.92 billion in estimated damages to about 14.57 million U.S. residences, according to CoreLogic. That equates to nearly 10% of the country’s homes. The chart below breaks down the impacts of those weather events.
HazardHomes impactedProperty damage ($B)Reconstruction cost value ($B)Wildfire4,101$1.46$0.73Severe weather563,627$7.46$123.70Hurricane1,233,860$33.00$395.39Winter storm12,764,941$15.00$2,265.89Total14,566,529$56.92$2,785.72
According to a survey by Clever Real Estate, 87% of Americans said they’re concerned about climate change. Despite this, 63% said they’d still be open to buying a home in a high-risk area for natural disasters.
If you find yourself in the second camp, it’s worth taking the time to think about potential climate risks and how you can protect yourself before you buy.
How climate change impacts home buyers
Owning property in an at-risk area for severe weather means you could spend a lot more money as a homeowner — and not just when it comes to repairs.
Insurance companies charge higher rates in these places — and some won’t cover them at all — which leads to higher mortgage payments for borrowers. Of course, a larger monthly payment means a smaller home-buying budget and less money to spend elsewhere.
Nearly 10% of the country’s homes were impacted by the 13 biggest natural disasters in 2021 alone.
Plus, while having the proper homeowners insurance policy is necessary, making repairs can still be expensive. And reimbursement from your provider could be slow following major disasters.
If you have an older home and disaster strikes, you might have to pay extra to bring it up to today’s building codes. And if an event leaves your house uninhabitable, you could potentially need to relocate or completely rebuild afterward.
No one can completely avoid these risks. But you should think about the high costs of insurance and repairs ahead of time, as these can impact both your home-buying budget and your overall financial health. In other words, don’t let yourself be caught off guard if the worst happens.
What to consider when choosing a house
Natural disasters can throw entire communities into disarray, pushing people into temporary housing, forcing permanent relocations and depreciating home values — especially in areas without the infrastructure to withstand them.
Disasters can also put borrowers in a position of mortgage default or leave them unable to afford reconstruction.
For example, Hurricane Ida devastated Houma, La., in August 2021. The aftermath of the category 4 storm caused mortgage delinquency rates to jump from 7.4% to 13.3% month-over-month, according to CoreLogic.
When making one of the biggest financial decisions of your life, it’s important to know which potential dangers your property faces.
Due to their enhanced strength and the housing-dense coastlines they typically batter, hurricanes pose a threat to many borrowers. In addition to covering some of the most desired and expensive real estate in the country, coastal counties in the contiguous U.S. account for nearly 40% of the population but less than 10% of the land, according to the NOAA.
CoreLogic’s 2022 Hurricane Report revealed that 31 million homes face the risk of wind damage and 7.5 million face surge damage — the two main loss areas from these storms.
Hurricane season normally spans June through November, but that definition may be antiquated; 2021 was the seventh straight year where a hurricane hit before June and had the third-highest annual tropical storm activity on record. Hurricanes build strength over warm ocean temperatures. As the seas keep getting hotter, it will likely lead to more of these storms at increased severity.
With Florida being on the hurricane vanguard, building codes could soon shift and insurance costs are jumping, according to Whitney Hall, branch manager for First Option Mortgage.
“There’s been talk that if homes built before 1981 get more than 50% destroyed, they’ll either need to be brought up to code or torn down. People just don’t have tens of thousands of dollars to bring their house up to code or raise it above the floodplain,” Hall said.
In September 2021, Hurricane Ian destroyed Hall’s south Florida home and the majority of its surrounding community. He said he paid about $15,000 out-of-pocket for damages and was still waiting for insurance reimbursement 45 days later.
Hall also noted that since Hurricane Irma in 2017, insurance prices doubled in most areas, which can have a big impact on borrowers’ monthly mortgage payments.
“Insurance companies are getting hammered so hard with claims, that a person’s buying power is substantially reduced because of the amount of insurance needed on some houses.”
–Whitney Hall, branch manager, First Option Mortgage
While strongly associated with hurricane aftermath, flooding is a separate entity and doesn’t only happen because of rising sea levels along the coasts. It can occur near lakes, rivers, and even from heavy rainfall.
For example, about 26% of the 1.4 million single-family homes in Cook County, Illinois — which includes Chicago — are at moderate-to-extreme risk of flash flooding, according to CoreLogic. The combined estimated reconstruction costs of these residences would total $120.8 billion.
Perhaps because flooding isn’t exclusive to a particular region, borrowers don’t always think about it before purchasing property. Only 23% of home buyers take flooding risk into consideration when relocating, according to Clever.
Hall implores house hunters — especially those searching in flood-prone areas — to put more weight behind it before making a decision.
“We’ve talked about rising waters for so long that it’s an out-of-sight, out-of-mind issue for people. Every time we have a major storm, we see things slow down in our market until complacency sets back in. The insurance companies are getting hammered so hard with claims, that a person’s buying power is substantially reduced because of the amount of insurance needed on some houses,” Hall said.
As global temperatures rise and desertification expands, wildfire risk grows and the damage becomes more extreme.
Between 1983 and 1992, wildfires consumed an average of 2.7 million acres per year. By contrast, the annual average from 2012 to 2021 was 6.8 million acres per year, according to CoreLogic. The annual total surpassed 10 million acres in 2015, 2017, and 2020.
Wildfires, and the droughts that cause them, are most common in the Western states from late spring to early fall. As average temperatures have increased over time, water levels have declined. This has increased the length and breadth of wildfire season.
According to CoreLogic, the top 10 states facing wildfire danger have a total of nearly 3.5 million single-family homes facing risk.
StateSingle-family residences at wildfire riskCalifornia1,265,435Florida814,499Texas474,560Colorado319,799New Mexico120,428Oregon119,541Arizona119,231Idaho96,939Alaska84,882Montana80,694
Because of the increased danger from wildfires, insurance premiums (and the cost for homeowners) have risen as well. In California, the combined written premium totals for dwelling fire and homeowners insurance jumped 27% from $8.7 billion in 2017 to $11.1 billion in 2020, according to the California Department of Insurance.
According to the Federal Reserve Bank of Chicago, some insurers have already stopped covering parts of California because they are too risky for wildfires. Since 2018, removed wildfire insurance coverage increased by 31%.
Expert tips to mitigate climate change risk as a home buyer
Huge work needs to be done in order to slow and hopefully even reverse the effects of climate change. In the meantime, homeowners and buyers have plenty of things they can do to their properties or look for in listings to reduce the risk of potential damages.
Assess climate change risks before buying
When it comes to assessing the perils of global warming and natural disasters on a house for sale, knowledge is power.
Florida-based Remax associate Jennifer White strongly suggests home buyers do research before bidding on any for-sale properties. “I always recommend that buyers go to the FEMA website to gather their own information on the potential climate impacts for their home, like whether it’s located in a flood zone. Also, contact your insurance provider to determine what potential damage is covered under your policy and what coverage is necessary for your area,” White said.
White also tells borrowers to pour over the seller’s property disclosure — where they’re required by law to detail any and all elemental damage their house incurred — as well as inspect the grounds and foundation for cracks, sloping, and mold. While sometimes costly, she urges to pay for professional inspections.
“It’s worth the price to have peace of mind to truly understand what you are purchasing, and how it has and will continue to withstand climate-related events,” White said.
Do preventative maintenance
For places impacted by tropical storms, putting hurricane shutters on windows and having sandbags to block water from entering the house are proactive steps to take. You should also ensure all electronics stay at least a foot above the floor since most non-extreme flooding will be below that mark, Doe stated.
In areas susceptible to wildfires, California-based Redfin principal real estate agent Mike Cendejas suggests having personal water reserves for quick access and cutting back plants at least five feet from your home. “Whether it’s eliminating trees, keeping debris away from the property, or keeping it clean of weeds,” he said.
Cendejas also talked about installing specialized rooftop sprinkler systems and/or gutter guards to prevent build-up of materials that could catch fire more easily.
Take steps to avoid losing your assets
Insurance is paramount for homes at higher risk of climate damage and destruction. And — much like shopping around for a mortgage — getting the right type of insurance at a better price requires some leg work.
“Once they find a property they like, I recommend talking to two or three insurance agents to get estimates and then decide if they want to move ahead,” Cendejas said.
If you do find yourself in the unfortunate situation of filing an insurance claim, Doe advises taking videos all around your house for proof of your possessions and their approximate values. She also recommends having a go-bag packed in case you ever need to evacuate.
Consider green upgrades to your home
At the individual level, Doe says you can reduce your carbon footprint and “not be part of the clear and present danger of climate change” by adding solar panels, improving insulation, putting out rain-collecting barrels, and installing multi-paned windows.
If you want these upgrades for your property, you can often finance them through special home loan programs that can make it more affordable. Energy efficient mortgages (EEMs) focus on environmentally friendly homes and have their own rules and processes. They also typically have lower interest rates than the market average, so it could pay to make your house greener.
Advice for borrowers
Not everyone can just pick up and move if they live in high-risk climate areas. And many simply won’t want to — just like some borrowers won’t be deterred from relocating to desirable communities despite the risk.
But wherever you live, you can take measures to mitigate or possibly avoid damages from natural disasters.
You should keep in mind that general homeowners insurance usually won’t protect you from things like wildfires or floods, and you’ll probably need to purchase additional coverage depending on what risks your property faces.
If you’re ready to get a mortgage and become a homeowner, reach out to local loan officers today.