House prices are rising faster in disaster-prone areas

Homebuyers are not deterred from purchasing properties in areas where natural disasters are increasingly probable. In fact, those more vulnerable spots are even more desirable, according to research from Home Bay, an affiliate of Clever Real Estate.

Median sales prices have increased 167% in the three states with the most federally-declared disasters since 2012: California, Oregon and Washington. That compares with the national median home price gain of 113% over the same period. 

"While we like to believe folks are rational decision makers, many of us do not make decisions based on rational information," said Danetha Doe, an economist with Clever Real Estate. "People are buying their homes based upon their desire to live in a beautiful location, and not necessarily thinking about the long-term impacts of climate change in that area,"

Rather, while climate change is a hot topic, many people perceive it as a long-term issue rather than as something they need to deal with right now, Doe continued.

For mortgage lenders and servicers, increased home values also up their financial risk related to natural disasters. In these situations, forbearances from Fannie Mae and Freddie Mac are common. Also, delinquencies in affected areas rise for several months afterwards. In either case, servicers are on the hook for advances to mortgage-backed securities investors.

Lenders need to create policies around climate change and what that means when it comes to approving a mortgage in an area that will be affected by this in the not-so-distant future, Doe said. Insurers are already having these conversations; in California, for example, the industry is more reticent about issuing policies in areas at high risk for wildfires.

"The challenge is of course, that means that will impact their business," Doe noted. "And so there are a whole host of questions that will have to be answered once that's brought to the table."

CoreLogic's forecast for the 2022 Atlantic hurricane season expects nearly 7.8 million homes with more than $2.3 trillion in estimated combined reconstruction cost value are at risk of water damages while wind could impact 33 million homes with $10.5 billion of value.

That is higher than its RCV estimates for 2021 of $1.9 trillion and $8.5 trillion respectively.

But it's not just hurricanes that have ramped up in recent years. Increased incidence of wildfires haven't deterred buyers in high-risk areas, a Redfin analysis found.

In California, two of the counties with the highest number of properties at risk of wildfire are Riverside, where prices are up 183%, and Los Angeles, where they rose by 147%.

Meanwhile, 11 of the 50 most populated metro areas in the U.S. are in five Atlantic or Gulf Coast states most at risk for water or wind damage, according to the Federal Emergency Management Agency's Expected Annual Loss score: Texas, Florida, Louisiana, North Carolina and Mississippi.

Luke Sharrett/Bloomberg

The National Oceanic and Atmospheric Administration predicts a 65% chance of an above-normal hurricane season, with a 25% chance of a near-normal season and a 10% chance of a below-normal season.

A range of 14 to 21 named storms (with winds of 39 miles per hour or higher) are expected, of which six to 10 could become hurricanes (winds of 74 mph or higher); between three and six could be major hurricanes, those graded at category 3, 4 or 5, with winds of 111 mph or higher.

Of the 11 those cities affected, only New Orleans did not see its prices double in the last decade, just increasing 68%.

At the top of the scale, prices rose the most in a trio of Florida cities: Tampa by 202%; Orlando, 193%; and Miami, 172%.

The states most at risk for coastal flooding are on both coasts: New Jersey, Washington, Florida, Oregon and Louisiana.

In the last 10 years, winter storms have caused nearly $35 billion in damage in the U.S. up from $5 billion during the previous 10-year span.

No state has worse winter storm risk than Texas — a reality that played out during a severe storm in February 2021, the report noted.

The five states with the lowest Expected Annual Loss score are all on the East Coast: Rhode Island, Vermont, Delaware, New Hampshire and Maine.

None of the more affordable metro areas for homebuyers are in states with EAL scores of 55 or higher.

"It is interesting that the areas within the United States that are less impacted by climate change today and in the future, are not seeing the rise in home prices because rationally we would think, 'Oh, this is a climate safe place to move to,'" said Doe.

People are making their decisions based on desirability for factors like an ocean view or a mountain view or sunny weather.

"As climate change becomes more of an issue that folks are seeing in their daily lives, we may start to see that shift, migrating…back to those areas that will be less impacted by climate change," said Doe.

Hartford, Connecticut, with an EAL score of 8.6 (on a scale of 0 to 100), reported a mere 38% home price increase from 2012. Baltimore, where prices increased 42%, has an EAL score of 21.7. Prices rose 46% in Virginia Beach, Virginia, which has an EAL score of 26.5.

Some states are already being proactive, including Oregon, which has home energy scoring for consumers, Doe said. ​​​​These systems help homeowners, homebuyers and renters to​better understand a home's energy use, the state's website explained. However, the only place such an audit is required is in Portland.