How Climate Change Can Affect Property Valuation

How Climate Change Can Affect Property Valuation

After years of being swept under the rug by media and energy giants, climate change has become a global cause of concern. The proof that it’s not just a myth is that the oil industry admitted in their studies decades ago that the burning of fossil fuels releases harmful greenhouse gases in the atmosphere. Now that people are taking climate change more seriously, it’s important to think about what it means for property values.

High Insurance Rates for Homes in disaster-prone Areas

Most homes are vulnerable to some type of environmental disasters such as fire or flooding. Unless your home is built with fireproof materials and elevated to avoid flooding, it can suffer either type of catastrophe. Despite the growing awareness of climate change, many home buyers still move to floodplains and wildfire zones.

When they buy a home in a potential disaster area, people usually notice a spike in insurance rates. Insurers set rates based on risks because they don’t want to easily fork over a huge amount of money to pay for a predictable disaster.

Climate change affects all regions and is making adverse climate conditions more volatile and unpredictable. So, just because an area has no history of flooding doesn’t mean it is immune to such disasters.

How Disasters Lower Home Values

Most Americans believe that climate change is getting worse. With this fear comes second thoughts about buying homes in high-risk areas. Many times entire neighborhoods can suffer declines in price value when word gets out the area is vulnerable to flooding or other natural disasters.

First-time homebuyers gravitate toward affordable neighborhoods, which often turn out to be areas where risks of damage are high. While you will be paying higher insurance costs, your policy will not cover all climate change factors.

Dry climate and drought have led to wildfires in the Western United States, burning over 10 million acres of land in 2020. As the frequency of these fires increases, so do insurance rates. Meanwhile, home prices have risen in low-risk areas but have declined in high-risk areas of Washington, Oregon, and California.

Exceptions to Climate Change Trends

Despite the fact that climate change is impacting insurance rates, not all high-risk regions are experiencing decreases in home value. Utah, for example, has a high risk for wildfires, yet median home prices have risen in the past five years. It just happens to be America’s fastest-growing state.

Even though storms and the 2021 freeze in Texas were devastating, they didn’t stop home buying in the state. Other popular migration destinations with high risks include Florida cities such as Tampa and Orlando.

Millions of properties across America have been affected by climate change. Contact our team at Andraya Coulter for help getting home loans at affordable rates.

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