by Daniel Brouse
February 20, 2025
Projected Devaluation of U.S. Homes Due to Climate Change
Recent analyses indicate that climate change poses a significant threat to the U.S. housing market. Over the next five years, it’s projected that at least 20% of U.S. homes will experience devaluation due to climate-related impacts. In certain vulnerable markets, property values could decline by up to 30% within this period. By 2055, approximately 84% of all U.S. homes may suffer devaluation, resulting in an estimated $1.47 trillion in losses. This timeline aligns with the typical 30-year mortgage term, underscoring the long-term financial risks for homeowners and lenders.
Insurance Market as an Indicator of Real Estate Vulnerability
The availability and cost of homeowners insurance are critical factors influencing mortgage approvals and, consequently, home valuations. Insurance is often considered the ‘canary in the coal mine’ for real estate, signaling emerging risks associated with climate change. High-vulnerability regions, particularly coastal areas in states like Florida, Louisiana, and California, are confronting a compounded crisis. The convergence of escalating insurance premiums, frequent natural disasters, and declining property values is placing immense strain on both homeowners and insurance systems. In Florida, for instance, the state-owned Citizens Property Insurance Corporation has become the largest insurer, reflecting the significant withdrawal of private companies from the market due to unmanageable risks.
Historical Context and Accelerating Climate Change Impacts
Traditionally, real estate has been regarded as a stable and appreciating investment, often outpacing general inflation rates. Since 1963, while inflation has risen by 896%, housing prices have surged by more than 2,350%. However, climate change is disrupting this paradigm. Scientific observations have documented a non-linear acceleration of climate change impacts, with the doubling time of these effects shrinking from approximately 100 years to just a few years. This rapid acceleration suggests that the adverse consequences of climate change on real estate are intensifying at an unprecedented rate.
Policy Changes and Their Potential Exacerbation of Climate Risks
Recent policy shifts under the Trump administration may further exacerbate these challenges. The administration has rescinded numerous environmental regulations and executive orders aimed at mitigating climate change. Notably, President Trump signed 26 executive orders on January 20, 2025, which included the repeal of approximately 80 prior executive actions focused on energy, environmental, and natural resource agendas. These actions reflect a strategic shift towards promoting domestic fossil energy production and reducing regulatory oversight, potentially accelerating environmental degradation.
Additionally, the administration has proposed reforms to key entities in the U.S. housing finance system, specifically Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA). The proposed privatization of Fannie Mae and Freddie Mac could lead to increased mortgage rates, adversely affecting housing affordability. Furthermore, the potential elimination of the Consumer Financial Protection Bureau (CFPB) may reduce oversight in the housing market, increasing the risk of predatory practices. These reforms could introduce significant uncertainty into the housing market, influencing home prices and overall economic stability.
The Trump administration has also announced plans to dismantle the Federal Emergency Management Agency (FEMA) and rescind all updates to floodplain maps. Homeland Security Secretary Kristi Noem supports reallocating FEMA’s responsibilities to state and local authorities, citing operational inefficiencies and flawed responses to recent disasters. President Trump has signed an executive order revoking the Federal Flood Risk Management Standard, effectively halting enforcement of updated floodplain maps. Critics argue that these actions could leave states unprepared for natural disasters and increase vulnerability to flooding leaving homeowners and lenders underwater.
Conclusion
The intersection of accelerating climate change impacts and recent policy shifts presents a formidable challenge to the U.S. housing market. Homeowners, investors, and policymakers must recognize and address these converging threats to safeguard the stability and value of real estate assets in the face of an evolving environmental and regulatory landscape.
Sources:
- Climate Change Threatens U.S. Housing Market with $1.5 Trillion Devaluation
- Trump’s Housing Finance Reforms: Privatization and Deregulation Amidst Controversy
- Real Estate in the Face of Economic and Environmental Challenges
- Insurance Cost and Availability
- The Cost of Climate Change: Rising Homeowners Insurance Rates
- Climate Change and Insurance: The Los Angeles Wildfires
- The Insurance Crisis the FAIR Plan a System Under Strain: California’s insurance industry is facing a growing crisis, rendering it unsustainable and putting the state’s real estate market at significant risk of collapse.
- Climate Change’s Impact on Florida Insurance: For those holding property in Florida, it may indeed be a case of “better late than never” to consider selling or relocating. As climate risks continue to escalate, so too will the financial and personal costs of remaining in high-risk areas.
- Homeowners Insurance Coverage $1 Trillion Hole
- Flood Insurance
- How is All Real Estate at Risk From Climate Change?
- The Age of Loss and Damage