People love to live in coastal areas, in fact 4 out of 10 Americans do. However, if sea levels rise over time, as scientists usually expect, what will this mean for housing prices? Unfortunately, this is not good news for very good owners. Researchers at Wharton, according to the National Bureau of Economic Research published this month, are now seeing real price declines. What was once a theoretically debated threat to housing prices may be real, at least in Florida.
Rising levels can cause two problems for homeowners, the first of which is the increased likelihood of temporary flooding. The second is the more fundamental risk of the area eventually becoming submerged (flooding). Both are not positive for prices.
If so, apartment prices in high-risk areas may fall or at least rise less than other homes. Wharton’s researchers claim that since 2018, they have seen average house prices in coastal areas of Florida, while in other parts of the same state, prices have been stronger. In case of some climate risk, the housing market may set prices.
Buyers are likely to call everyone who looks appropriate, if there are only a few
Interestingly, home buyers are more concerned with climate risk than mortgage providers. This may be due to the National Flood Insurance Program. This means that lenders may have some protection against flooding, at some risk to the government. According to Freddie Mack, other programs do not seem to affect climate risk. As such, home buyers are concerned that they could have a direct impact on falling prices. However, for creditors, the blow can be mitigated by government programs that cannot set an effective price in the event of climate risk.
First volumes, then prices
Home prices are an interesting market. Prices can move quite slowly. It is assumed that until prices fall, volumes may slow down. This is what researchers have seen off the coast of Florida.
The first volume was reduced because buyers were not ready to buy at market rates, then recently prices fell. This is in line with other house price declines, such as the 2000s. Unlike fast-moving equity, where information can sometimes be included for hours, apartment prices are less likely to respond more slowly, as homeowners are initially simply reluctant to sell rather than falling in price.
Of course, although researchers see that some Florida properties are depreciating, it may be due to other factors, from low interest rates to COVID trends. It is difficult to prove conclusively that climate change is the ultimate driving force.
That said, the main difference between the features that the researchers studied was that some were in coastal areas and others were not. And indeed, as climate change emerges as a risk factor, researchers are finding what they expected.
Stock prices have begun to pay attention to climate risk, the latest major investment topic with the introduction of ESG. This includes some investors who are willing to pay a premium for companies that have excellent environmental experience and avoid market areas such as fossil fuels. Maybe now the environmental risk is also taken into account in housing prices. Of course, this is only early data from one state, but these Worton researchers, Benjamin Keys and Philip Mulder, may have found early signs of a broader trend.