- DeltaTerra warns that 20% of U.S. homes could lose value due to climate-driven risks.
- Properties in flood-prone and wildfire-prone areas are already seeing reduced loan approvals.
- Rising insurance premiums and limited mortgage options are making high-risk areas less desirable.
- Investors need to adjust strategies to consider climate resilience and market trends.
- Without policy intervention, climate risks could accelerate housing market decline nationwide.
Climate Change and Real Estate: The Growing Financial Threat
Climate change is no longer an abstract concern—it’s already disrupting property values, mortgage markets, and insurance industries across the U.S. Rising sea levels, worsening wildfires, and more frequent hurricanes are making certain regions riskier to own property in. Experts suggest that these climate-related risks could devalue nearly 20% of U.S. homes in the coming decades. For homeowners, investors, and prospective buyers, understanding this shift is essential to making informed real estate decisions.
How Natural Disasters Impact Home Values
The increasing frequency of natural disasters is a direct threat to real estate markets. Events such as hurricanes, wildfires, and flooding can cause billions in damages, making it more expensive to insure and maintain properties in affected areas.
Destruction and Immediate Financial Losses
When a hurricane, flood, or wildfire strikes a community, there’s immediate property damage. Entire neighborhoods can be left uninhabitable due to structural destruction, prompting costly repairs. In some cases, properties become total losses, forcing homeowners to abandon their investments. These damages not only affect individual homeowners but also lower the overall value of surrounding properties.
Long-Term Devaluation and Insurance Challenges
Even if a home survives a natural disaster, its value can still decline. High-risk areas often see rising insurance premiums or difficulty obtaining any coverage at all. Some insurers are pulling out of states prone to natural disasters, leaving homeowners with fewer options and significantly higher costs. In areas like California, where wildfires have become an annual threat, insurance companies have already begun limiting coverage or exiting the market entirely.
Why DeltaTerra Predicts a 20% Decline in U.S. Home Values
Dave Burt, CEO of DeltaTerra, is sounding the alarm on how climate change is reshaping real estate markets. His firm’s analysis suggests that climate risks are already influencing financial decision-making, and their impact will only grow stronger.
Insurance Retreat and Rising Costs
One of the major reasons for the projected home value decline is the shrinking availability of homeowners’ insurance in high-risk areas. If insurers deem a region too risky, they either stop offering coverage or raise premiums to unaffordable levels. When homeowners can’t secure reasonable insurance, property values drop as buyers shy away from purchasing homes with uncertain financial stability.
Mortgage Lenders Adjusting Their Risk Models
Lenders are also reacting to climate risks by reassessing mortgage approvals. Some are reducing loan availability in areas prone to disasters or requiring buyers to purchase additional insurance—which can make homeownership unaffordable. A study published in the Journal of Sustainable Finance & Investment found that banks are increasingly incorporating climate risks into lending decisions, signaling potential challenges for real estate in vulnerable locations.
The Most Climate-Vulnerable Regions in the U.S.
Not all parts of the U.S. are equally vulnerable to climate-related real estate risks. Some areas are already seeing depreciating property values due to environmental challenges.
Coastal Cities: Rising Sea Levels and Hurricanes
- Florida & Louisiana: Low-elevation coastal cities are among the most threatened. Rising sea levels and stronger hurricanes make homeownership in areas like Miami and New Orleans riskier. Studies have shown that properties at higher elevations in these cities are appreciating faster than those at sea level—evidence of climate gentrification.
- New York & New Jersey: Hurricane Sandy provided a stark warning about coastal risks, leading to lasting impacts on the real estate market. Some waterfront properties have struggled to recover from the disaster’s financial blow.
California’s Fire-Prone Regions
- Northern & Southern California: Worsening wildfires are a pressing concern for homeowners across California. Entire communities have been lost in wildfire events, leading insurers to pull back from offering coverage. For example, Paradise, California, saw home values plummet after the devastating 2018 Camp Fire.
- Lake Tahoe & Napa Valley: Traditionally high-end real estate markets are also feeling pressure as wildfires pose increasing threats. Property values in these regions may stagnate or decline as insurance premiums skyrocket.
Interior States: Droughts and Extreme Heat
- Arizona & Nevada: Extreme heat and water shortages are now being factored into home prices. In cities like Phoenix and Las Vegas, long-term concerns over water availability could affect housing demand and price appreciation.
- Texas: While Texas remains a hotspot for real estate growth, parts of the state face increasing flood risks and extreme heat, particularly in cities like Houston.
The Role of Insurance and Mortgage Lending in Housing Market Decline
The real estate market doesn’t operate in isolation—it’s heavily influenced by financial institutions like insurers and mortgage lenders.
How Insurance Pullbacks Impact Home Prices
If insurers refuse to cover homes in high-risk areas or make premiums unaffordable, homeowners may find themselves unable to sell their properties. This contributes to declining property values and affects local housing supply. States such as Florida have already seen state-backed insurance providers stepping in to cover gaps left by private insurers retreating from risky regions.
Tighter Mortgage Lending Restrictions
Banks and mortgage lenders are now factoring in climate risks when deciding whether to issue loans. Homes in designated flood zones might require additional flood insurance, raising the cost of ownership. Likewise, banks may limit their mortgage offerings in communities at high risk for wildfires or extreme weather events. This drives demand away from high-risk areas, leading to a long-term decline in property values.
Financial Risks for Homeowners
Negative Equity and Mortgage Defaults
If property values drop significantly, homeowners could end up in a scenario where they owe more than their home is worth. This negative equity situation can make it difficult—or even impossible—to sell or refinance. If values decline rapidly, some homeowners may even default on their mortgages, leading to broader economic repercussions.
Smart Strategies for Real Estate Investors
For investors, climate risks present both challenges and opportunities.
Investing in Climate-Resilient Markets
Investors should look for regions with climate resilience factors, such as strong infrastructure, sustainable urban planning, and proactive environmental policies. Cities with elevated land, effective flood control, or reduced wildfire risks may present safer long-term investment opportunities.
Upgrading Properties for Climate Adaptation
Features such as elevated foundations, wildfire-resistant materials, and improved drainage systems can make properties more attractive in climate-exposed regions. Investors who incorporate these features into their real estate portfolios may see better returns despite broader climate challenges.
How Las Vegas Real Estate is Affected by Climate Change
Although Las Vegas isn’t dealing with rising sea levels or frequent wildfires, extreme heat and water scarcity are growing concerns. The region relies on the Colorado River for its water supply, and ongoing drought conditions could impact long-term property values.
Real estate experts like Steve Hawks suggest that homebuyers consider factors such as water efficiency, climate policies, and future infrastructure developments when investing in Las Vegas properties.
Choosing Climate-Safe Properties as a Homebuyer
For those looking to buy a home, factoring climate risks into their purchasing decisions is critical.
Key Considerations for Climate-Safe Properties
- Location Elevation: Higher-elevation properties in flood-prone zones may be safer investments.
- Proximity to Fire Zones: Homes in wildfire-prone areas should have defensible space and fire-resistant designs.
- Insurance Availability: Buyers should research local insurance trends before purchasing homes in high-risk areas.
- Sustainability Features: Features like solar panels, energy efficiency, and water conservation infrastructure can improve a home’s resilience to climate hazards.
How Real Estate Professionals Help Navigate Climate Risks
Working with experienced real estate agents familiar with climate risks can help buyers make informed choices in this new real estate landscape. Agents like Steve Hawks provide guidance on assessing a property’s exposure to environmental risks, ensuring homebuyers and investors can make well-informed decisions.
Policy Solutions to Prevent Housing Market Decline
Governments and policymakers must act to mitigate climate-related housing risks. Solutions include
- Improved zoning laws to prevent reckless development in high-risk areas.
- Investment in climate-resilient infrastructure to support affected communities.
- Greater transparency in climate risk disclosures for homebuyers and investors.
Citations
- Keenan, J. M., Hill, T., & Gumber, C. (2018). Climate gentrification: From theory to empiricism in Miami-Dade County, Florida. Environmental Research Letters, 13(5), 054001.
- Painter, M., & Christensen, P. (2020). Mortgage markets and climate change: A study on default risk in flood-prone areas. Journal of Housing Economics, 50, 101738.
- Schulte, P., & Ritchie, H. (2021). The financial sector’s growing concern over climate risks. Journal of Sustainable Finance & Investment, 11(2), 275-295.