The landscape of homeownership is changing. Climate change is no longer a distant threat; it’s impacting housing markets today. From rising insurance costs to an increase in extreme weather events, buying and owning a home is becoming riskier. This guide will equip you with the knowledge to make informed decisions in a warming world.
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- Climate change is increasing property damage and insurance costs. Homeowners may face higher premiums or struggle to find coverage, so understanding these financial impacts is crucial.
- Homes built to stricter, up-to-date building codes are better equipped to withstand extreme weather. Buyers should verify the building codes in their area to ensure their homes are resilient.
- Homebuyers must conduct thorough research on climate risks for their desired properties. Use tools like FEMA’s National Risk Index and flood maps to assess potential hazards and make informed decisions.
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A Guide for Buyers and Sellers To Navigate The Impact of Climate Changes on Homes
The Problem: A Changing Climate, Changing Risks
A warming world is leading to significantly more property damage across the country. Events like derechos—powerful windstorms—along the Gulf Coast, massive hailstorms, and an unprecedented tornado season highlight the escalating risks. Predictions for a hectic Atlantic hurricane season and record-breaking heatwaves globally further underscore the urgency of addressing these threats.
The financial consequences of climate change are becoming increasingly evident. Property insurance premiums are rising, and in some cases, insurers are withdrawing coverage altogether. State-run “insurance of last resort” plans are available in 34 states, the District of Columbia, and Puerto Rico, but they often offer less coverage at a higher cost. Homeowners unable to afford insurance may find themselves with lender-placed insurance, which typically comes with even higher premiums.
These alarming developments were a primary focus at the recent “Going to Extremes” conference near Washington, D.C. Organized and co-hosted by Toni Moss, CEO of AmeriCatalyst and an international expert on mortgage finance markets, the conference brought together climate scientists, government housing officials, economists, insurance experts, data analysts, and investors.
The consensus was clear: until political, business, and financial leaders develop a comprehensive framework to address these threats, it is up to individual buyers, sellers, and investors to conduct their due diligence.
These events have several consequences for homeowners:
- Higher Variable Costs: The cost of repairs after natural disasters is significant. This can increase property taxes, utility bills, and homeowner’s insurance premiums.
- Limited Insurance Options: Many states offer state-run “insurance of last resort” plans, which typically offer less coverage and higher costs. Additionally, many of these programs need concrete plans for addressing potential financial shortfalls, raising concerns about their long-term viability.
- Uninsured Properties: If homeowners cannot afford insurance and have a mortgage, their servicer must purchase lender-placed insurance. Unfortunately, since servicers have no incentive to shop around for the best deals, these premiums will likely be significantly higher than homeowners previously paid.
Understanding the Risks
The Federal Emergency Management Agency (FEMA) maintains a National Risk Index identifying 18 hazard types, including avalanches, coastal flooding, droughts, earthquakes, and wildfires. Among these, five hazards are particularly prevalent in a warming world:
Drought
Droughts are the second most costly weather event in the U.S., causing long-term damage that can persist for months or years. Unlike hurricanes, drought conditions can continue indefinitely, making them particularly insidious.
Heat
Heatwaves have become more frequent, intense, and prolonged. The National Weather Service has identified heat as the most deadly extreme weather phenomenon in the U.S. over the past 30 years. Rising temperatures affect human health, strain infrastructure, and increase energy costs.
Wildfire
With more than 46 million residences in wildland-urban interface areas, wildfires pose a growing threat. These are zones where human development meets undeveloped land and are particularly vulnerable. In 2022 alone, 66,255 wildfires burned over 7.5 million acres, causing significant destruction.
Storms
Tornadoes, hurricanes, hailstorms, and other severe storms cause extensive property damage and yearly fatalities. Tornadoes, in particular, are deadly, while hurricanes can cause catastrophic property damage. These storms are becoming more powerful due to climate change, increasing the risk for homeowners.
Flooding
Floods are the most common weather-related natural disasters, with significant risks even in areas with low or moderate flood potential. FEMA’s website highlights that if you live in an area with low or moderate flood risk, you are still five times more likely to experience a flood than a fire in your home over the next 30 years.
The New Reality for Homebuyers: Research Is Key
With many mortgage originators and investors ignoring the emerging threats of climate change (unlike insurance companies), the burden falls on individual homebuyers to conduct research and due diligence. Here are some steps you can take to navigate this new reality:
Extensive Research is Crucial
Several resources are available to help you assess climate risks for specific properties. Here are some key ones:
- FEMA National Risk Index: This index provides data on 18 hazard types, allowing you to see which hazards are most prevalent in your desired location.
- FEMA Flood Maps: These maps identify areas at risk of flooding.
- USDA Wildfire Risk to Communities: This tool helps assess the wildfire risk for specific communities.
- U.S. Global Change Research Program’s Climate Mapping for Resilience & Adaptation: This program provides climate data at a regional level.
- Federal Alliance for Safe Homes: This non-profit offers resources for hazard mitigation and home safety.
- ClimateCheck and First Street: These private companies offer climate risk reports and flood risk modeling for properties, respectively.
Remember, these resources are a starting point. For example, when it comes to flooding, more than one-third of states have no legal requirements for sellers to disclose past flood damage or flood risks to potential buyers. Even in states with disclosure laws, FEMA’s flood maps may need to be updated to account for future flood risks. Considering flood insurance, regardless of official flood zone designation, might be a wise precaution.
Building Codes Matter
Building codes establish minimum safety standards for new construction. Homes built to stricter codes are generally more resilient to storms, use less energy, and offer better safety.
- The International Code Council (ICC) develops a series of model building codes, including the International Residential Code (IRC), which most U.S. jurisdictions have adopted.
- Unfortunately, compliance with these codes is voluntary. Builders often view stricter codes as time-consuming and expensive, leading them to favor less stringent standards.
- There are free online tools to check your area’s building code adoption status. FEMA’s Building Code Adoption Tracking program (BCAT) tracks building code adoption by state, local, tribal, and territorial governments. As of the second quarter of 2024, only 32% of jurisdictions tracked by BCAT have adopted the most current building codes for wind, hurricane wind, tornado, flood, and seismic events.
- The Federal Alliance for Safe Homes offers a search tool that allows you to input a specific address and see if the local building code is up-to-date. This tool also provides information on the community’s history of natural disasters and suggests renovations or upgrades that can improve a property’s strength and safety.
The Hurricane Coast in Focus
The Insurance Institute for Building and Home Safety (IIBHS) publishes a “Rating the States” report every three years. This report evaluates 18 Atlantic and Gulf Coast states’ residential building code adoption, enforcement, training, education, and contractor licensing. As of 2024, Virginia, Florida, and South Carolina were the top-ranked states, while Delaware, Alabama, and Texas ranked the lowest.
Finding a Climate Savvy Real Estate Agent
Finding a climate-savvy real estate agent can be a smart move. The National Association of Realtors offers a Green Designation for agents who learn about sustainable building practices. But that doesn’t necessarily mean they’re experts on climate risks.
Here’s how to find an agent who gets it: interview them thoroughly about their experience with climate risks in your area and any certifications they have. Talk to insurance agents, too, to understand potential insurance challenges. When you’re in escrow and reviewing disclosures, ensure your agent carefully reviews them with you.
This is your chance to ask questions and back out if something feels wrong. Remember, many agents may need to be fully informed about climate risks. Working with a knowledgeable agent ensures you’re making an informed decision about your future home.
Questions Buyers Should Ask Sellers
While many of these questions would be addressed during the disclosure process, getting answers upfront allows for more informed decision-making:
- Current Homeowner’s Insurance: Ask about the current premium and carrier to understand insurance costs.
- Flood Zone: Find out if the property is in a designated flood zone, and if not, inquire about whether flood insurance is still carried due to potentially outdated flood maps.
- Climate Risks: Ask about any recent increases in specific climate risks for the property and what steps the seller has taken to improve the home’s resilience.
- Age and Condition of Systems: For homes over 25 years old, inquire about the age and condition of the roof, electrical system, plumbing, and HVAC system. Insurers are increasingly scrutinizing these systems to minimize potential losses.
How Sellers Can Prepare for a Changing Market
Are you thinking of selling your house? Here are some ways to make it more appealing to buyers in this climate-changing world.
First, consider getting reports done on your house. These reports show potential buyers how your home compares to climate risks and energy efficiency. Transparency is critical; these reports can help buyers feel confident about their purchase.
Next, consider making some improvements to your house. Upgrading your home to the latest building codes can make it more resistant to fires, heat waves, and floods. This can be a big selling point for potential buyers worried about climate change.
Finally, consider upgrading some of your house’s major systems, such as the roof, electrical wiring, plumbing, and air conditioning. Newer systems are less likely to break down during extreme weather events and might even qualify you for lower insurance rates.
By taking these steps, you can make your house more attractive to buyers and ensure it sells quickly.
The Bottom Line: Taking Action in a Changing Climate
Climate change is a reality that both homebuyers and sellers cannot ignore. You can confidently navigate this new reality by educating yourself, taking steps to mitigate risks, and asking the right questions; whether buying or selling a home or prioritizing climate risks will ensure you make informed decisions for your future.
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