The biggest risk in real estate

The images and videos of Hurricane Helene’s aftermath are incomprehensible.

An emergency responder said the flooding in parts of North Carolina resembles biblical devastation.

I can’t imagine trying to pick up the pieces if your town, home or business was destroyed by the storm.

The good news is that this country is pretty good at rallying the troops to help in situations like this.

The bad news is that these situations are happening more often. Apparently we have a “one in 100 year storm” once a year now.

Hurricanes. Forest fires. The floods. Tornadoes. Cut the heat.

Climate change is one of the biggest risks to the real estate market in the coming years if these storms continue.

Last week, Zillow announced that it will now include climate risk and insurance data on all homes:

Zillow introduces climate risk data, provided by First Street, the standard for climate risk financial modeling, to listings of US properties for sale. Homebuyers will get information on five key risks – flood, fire, wind, heat and air quality – directly from the listing pages, complete with risk scores, interactive maps and insurance requirements.

Some may not care that much about climate change, but homeowners sure notice when their insurance bill goes up. You can lock in your home price and mortgage rate, but insurance rates aren’t fixed.

The national average annual home insurance premium in 2023 was just under $2,400. But in Florida it was closer to $11,000 a year (that’s the highest in the country).

As more people move into disaster-prone areas, the damage becomes more and more expensive. Some insurers have decided to pull out of certain states, areas or homeowners altogether. This makes insurance even more expensive, causing some homeowners to forgo home insurance.

The Wall Street Journal estimates that 12 percent of homeowners do not purchase homeowners insurance. I would expect this number to increase in the coming years as insurance costs become more burdensome.

So what happens when these high-risk areas are hit by natural disasters that make insurance too expensive?

This week, a Florida congressman advocated for the creation of a national catastrophic insurance fund that would essentially spread the costs among all states:

Representative Jared Moskowitz, a Democrat, has filed legislation that would “spread the risk” by using federal bonds to ease the insurance burden.

“It would not add money to the deficit. It would allow states to buy bonds, which — when we have them in 1,000-year events — would take that off the plate of the insurance companies, which adds 25 percent to the cost of reinsurance,” Moskowitz said in time of appearance. on Fox News on Saturday.

“Even if my bill doesn’t move or go anywhere, I think the United States government and Congress (needs to) start to realize that we need to cushion the risk, we need to spread that risk. It can’t just be up to one state or two states to deal with it.”

On the one hand, more people have moved to the coasts where the risk of strong storms is increased. They took that risk.

On the other hand, I have a hard time seeing local government officials sit by and let high insurance costs decimate their towns and cities.

This is sure to be a contentious issue for years to come.

Our producer Duncan is from North Carolina. He sent me the Zillow climate risk report for a coastal home listed in North Carolina (not on the ocean):

I should think twice when presented with these facts, or at least use it as a negotiating tactic.

I have more questions than answers about how this all plays out:

• Do we see a change in migration patterns in the coming years (people flocking to the south)?
• Will owning a home in certain areas become too risky for some people?
• Will owning a home in certain areas become too expensive for some people as insurance costs rise?
• Will house prices start to fall in high-risk areas?
• How long will insurers be willing to enter high-risk areas?
• When will the government step in to keep home insurance affordable?

It’s impossible to know how this will all play out because Mother Nature is unpredictable.

But make no mistake, this is one of the biggest risks for many homeowners in the years to come.

At the very least, prepare to pay higher premiums for your home insurance.

Further reading:
Is auto insurance becoming a crisis?