In aggragate, assuming large real estate gains in the next 25 years, the overall impact seems manageable. But for those caught in the cross fire between rising risks and rising costs of insurance in high risk areas, the consequences could be devastating.
Climate change will cause a $1.47 trillion decline in U.S. home values by 2055, according to a new study from climate-research company First Street.
Rising home-insurance costs and more homeowners spurning some risky neighborhoods will drive these declines, First Street said.
The study is an attempt to quantify the economic risk that weather events such as hurricanes, drought and heat waves pose to many Americans’ biggest financial asset—their homes.
Thousands of displaced Americans are currently contending with the fallout from recent natural disasters including this year’s wildfires in Los Angeles and hurricanes that ravaged the Southeast last fall.
The relationship between climate change and home values has become a more urgent question as losses from storms, wildfires and other natural disasters are hitting new records. Climate change is making many of those events worse, scientists say, and more Americans have moved to disaster-prone areas in recent years, increasing the number of properties at risk.
First Street projects the hardest-hit places will have rising home-insurance costs and population declines. The counties with the biggest projected population loss over the next 30 years are Fresno County, Calif.; Ocean County, N.J.; and Monmouth County, N.J.
Other regions are projected to have higher home-insurance premiums but continued population growth over the next 30 years, because strong local economies or other amenities are drawing people to those areas. These include counties in the Houston, Miami and Tampa, Fla., metro areas.
Some economists have argued for years that climate change should weigh on home prices in certain places, as home insurance becomes more expensive and Americans move to safer areas.
The effects could be far-reaching. Homeowners might have to sell their homes at a loss or struggle to sell them at all. Declining property values could hurt local property-tax revenues.
So far, however, the effect of climate change on home prices has been hard to find on a national level. Home prices climbed sharply in 2020 and 2021 as housing demand rose. Home-sales activity has plunged in recent years, but prices remain near record highs, including in some states considered vulnerable to climate change such as Florida and Arizona.
“There is evidence that it’s affecting people’s behavior about where to live and where to buy homes, but only in some locations and still kind of at the margins,” said Jenny Schuetz, vice president of housing at Arnold Ventures. “If you look at national population growth and migration, people are moving towards relatively high-risk places.”
First Street’s $1.47 trillion estimate represents the effect that climate risks are projected to have on home values and doesn’t account for how inflation or other factors could also affect home values. These projections also don’t take into account any changes that local areas might make to adapt to climate change, such as building better flood protections.
And if home values continue to appreciate at a rapid rate, the First Street figures won’t look as ominous as they seem today. For instance, if home values double in the next 30 years—from an estimated $50 trillion today to $100 trillion in 2055—a $1.47 trillion decline would represent only about a 1.5% decrease.
Home-price gains in many areas will likely outpace the climate-related losses, said Jeremy Porter, First Street’s head of climate implications research.
“They just won’t gain as much as they would have without the climate risk,” he said. “There’s a large number of communities that are going to be disproportionately impacted.”
First Street sells its data to companies, and its property-level risk forecasts are available on home-listing sites such as Zillow.
First Street’s study projects that average home-insurance premiums will rise 29.4% in the next three decades and that the number of Americans who will consider climate risks when moving will soar, from 5.2 million in 2025 to 55 million in 2055.
“One of the pain points for homeowners in the coming years is going to be affordability of insurance and property taxes,” said Benjamin Keys, professor of real estate and finance at the Wharton School of the University of Pennsylvania. “There are people who are going to be stressed and will want to relocate.”
First Street – Property Prices in Peril:
1. CLIMATE RISK RESHAPING REAL ESTATE FUNDAMENTALS: Climate change is transforming the U.S. housing market through two powerful indirect forces – soaring insurance costs and shifting consumer preferences – which together are creating a feedback loop where climate risks drive population movements and reshape property values across the nation, fundamentally altering traditional patterns of real estate growth and community development.
2. INSURANCE COST ACCELERATION RELATIVE TO HOME APPRECIATION: Insurance costs are rising dramatically faster than mortgage payments. From 2013 to 2022, insurance as a percentage of mortgage payments more than doubled, rising from 7-8% to over 20% of mortgage costs.
3. ANTICIPATED DISRUPTIONS IN SUN BELT GROWTH: Historical population migration to the Sun Belt, which has dominated U.S. population movement for decades, is being fundamentally disrupted by climate change impacts. The three largest Sun Belt states (Texas, Florida, and California) have absorbed over 40% of the nation’s $2.8 trillion in natural disaster costs since 1980.
4. CLIMATE-DRIVEN MACROECONOMIC ASSESSMENTS: First Street’s Macroeconomic Implications Model (FS-MIM) provides a comprehensive and novel analytical framework that combines the acute impacts of rising insurance premiums with the chronic effects of changing consumer demand and migration patterns to quantify how climate risks will reshape property values and economic vitality across American communities over the next three decades.
5. RISK-BASED INSURANCE PREMIUM PROJECTIONS: First Street estimates that unrestricted risk-based insurance pricing would drive a 29.4% increase in average premiums by 2055—comprising a 18.4% correction for current underpricing and an 11% increase from growing climate risks.
6. CONCENTRATED PREMIUM SPIKES IN COASTAL METROS: The five largest metro areas facing the highest insurance premium increases are Miami (322%), Jacksonville (226%), Tampa (213%), New Orleans (196%), and Sacramento (137%).
7. CLIMATE MIGRATION DRIVING POPULATION REDISTRIBUTION: First Street’s climate migration projections predict that over 55 million Americans will voluntarily relocate within the U.S. to areas less vulnerable to climate risks by 2055, starting with 5.2 million in 2025.
8. DIVERGENT GROWTH TRAJECTORIES ACROSS NEIGHBORHOODS: The report identifies five distinct neighborhood trajectories in climate migration and insurance increases: Climate Abandonment (26% of census tracts), Risky Growth (31%), Tipping Point (27%), Economic Decline (11%), and Climate Resilient (5%).
9. ECONOMIC VITALITY VS CLIMATE RISK TRADEOFF: The report indicates that economic strength alone may not be sufficient to retain population in areas facing severe climate impacts, as evidenced by projected “tipping points” in some currently growing metropolitan areas.
10. WIDESPREAD CLIMATE-DRIVEN PROPERTY DEVALUATION: By 2055, 70,026 neighborhoods (84% of all census tracts) may experience some form of negative property value impacts from climate risk, totaling $1.47 trillion in net property value losses due to insurance pressures and shifting consumer demand.
“These projections also don’t take into account any changes that local areas might make to adapt to climate change, such as building better flood protections.”
When people avoid selling their property at a loss, and too slowly lower the asking price, it’s called “chasing the market down.” There has to be a term for communities that spend more to build for tomorrow’s risk only to find it has worsened faster than they could budget for.