How Climate Change Could Impact Your Home Value | Real Estate

The last few years have not been kind to homeowners insurance premiums, especially for those living in states along the coast, where insurers and homeowners have to contend with rising oceans, more extreme hurricanes and wildfires. Some insurers have gone out of business, and others simply won’t do business in states such as Florida and California.

If you’re wondering how climate change will impact your home’s value, here are a few ways:

Arguably, for decades, homeowners didn’t think much about homeowners insurance when looking for a house. If you were buying a house, you thought about the cost of the mortgage and interest rates. You looked for a home in a good school district, with maybe a big backyard and away from a busy thoroughfare. You didn’t really think about homeowners insurance.

But people are thinking about it now.

“If your decision to purchase a home is solely a financial decision, then considering climate change should be high on the priority list,” says Tracey Ramsay, a real estate agent with RE/MAX Results in Duluth, Minnesota.

Ramsay says that if she were a homeowner she would give serious thought about moving to a state that has been hit hard by climate change, naming Florida, California, Texas and Arizona as states that would concern her as a homeowner. She also points out that it isn’t just that hurricanes and wildfires are raising insurance rates, but thanks to factors such as extreme heat, “homeowners are also seeing a big increase in utility costs.”

Ramsay says she can envision a time when some areas of the country become basically uninsurable. She says many parts of the country with extreme weather “are now being reserved for the wealthy elite.” This would include homeowners who have additional homes in other parts of the country or who can afford to rebuild their homes without insurance.

“But even the wealthy will have their tipping point and will flee if the inconvenience and danger become too much,” Ramsay says.

For now, buyers aren’t abandoning areas that are harder to ensure, according to Bill Martin, CEO of insurance company Plymouth Rock Home Assurance, but he says: “Many locations with high-risk characteristics remain popular with buyers, but buyers should be prepared for higher costs.”

While home values in coastal states such as Florida have been rising, the tide may reverse soon, says Andrew Grigg, a geographic information systems specialist based in Bolingbrook, Illinois, who tracks climate change trends and news on his blog, ClimateConduit.com.

“While extreme heat and humidity events in Illinois, Wisconsin, Indiana and Michigan have increased in number, and recently an 80-degree dew point was observed in Chicago, overall, there are few other natural hazards to note,” he says.

“The Great Lakes are not going to rise with the seas as they are already hundreds of feet above sea level. The summer thunderstorms and flooding are hazards and will continue to be, but they pale in comparison to wildfire and hurricanes,” says Grigg, who recently finished his first master’s thesis, doing an analysis of heat index variation in the Chicago area.

Griggs believes people will move from the Sun Belt to the Midwest and Rust Belt once it becomes clear that significant wildfire danger and an increase in major hurricane risks – plus unavailable and unaffordable insurance – are the new normal.

Homeowners insurance premiums have gone up approximately 21% since 2015, according to a study from LexisNexis Risk Solutions, which provides data and analytics. In Florida and Texas, which had the highest population increases last year, rates jumped up much higher – 40% in Texas and 57% in Florida.

Insurance premiums won’t stabilize any time soon, Martin says.

“The price of insurance is being adjusted for catastrophe risk and with it, most premiums are increasing 25% to 50% over prior levels,” Martin says. “In addition, some homeowners are encountering new requirements for higher deductibles for perils such as hail, tropical windstorms or wildfires. Many are not finding willing insurers at all. These owners are feeling the effects of investors being less willing to risk money on damaging weather.”

Note that it’s not only the weather that’s driving costs up, Martin says. Inflationary costs related to construction and labor shortages have added to the price.

“The cost to repair a home has risen anywhere from 25% to 75% in the last five years depending on location, type of construction and exposure to weather, water, and fire perils,” Martin says.

Experts predict that climate change will likely increase property taxes.

Many government officials say that if some communities are routinely drenched or demolished by hurricanes, flooding, wildfires and other natural disasters, residents will move away. If you live in an area of the country that routinely sees flooding and has fewer residents and a shrinking tax base, you could see your property taxes climb significantly. After all, somebody has to pay for your community’s infrastructure.

For instance, officials in Olympia, Washington, where residents are dealing with rising sea levels, have discussed a dedicated property tax or sales tax to fund solutions to fight against climate change. If your community is constantly bombarded by climate-change-related weather events, your property taxes will likely be affected.

Martin sees trouble ahead for homeowners whose properties are battered by climate change.

“When the total cost of owning a home goes up, the market value of the home can go down,” he says.

“Better location and better construction are less costly to insure,” he says. “Some homeowners have raised their homes above flood plains and others have moved structures further from fire or water hazards.”

There are a lot of simple adjustments, he says, that could reduce risk and make your home more appealing to a carrier to insure, such as removing a tree that looks like it could topple on your house.

Talk to your real estate agent if you’re looking for a home and worried about climate change, says Courtney Klosterman, director of communications for Hippo Insurance.

“Your real estate agent should be your go-to person. They are a good resource for information on fire, flood, tornado and other risks in the community,” she says, adding that you also might want to see if your community has a climate action plan.

“Take a look at the city’s or state’s climate action plan, how the specific neighborhood may be affected and plans for the future,” Klosterman says.

And if your community doesn’t have a climate action plan, you may want to come up with your own. Ignoring the potential impacts of climate change will not make the reality fade away.