by Daniel Brouse
February 19, 2025
In the next five years, at least 20% of U.S. homes are projected to lose value due to climate change impacts, according to Dave Burt, founder of DeltaTerra Capital. Burt, who foresaw the subprime mortgage crisis nearly two decades ago, draws parallels between that event and the emerging climate-related housing market risks. He warns that as climate risks escalate, the insurance industry will be compelled to raise premiums, increasing homeownership costs and subsequently reducing property values. Burt anticipates that these vulnerable markets could experience a 30% decline in value over the next five years, mirroring the downturn seen during the Great Recession.
Supporting this outlook, a recent analysis by climate-risk firm First Street Foundation estimates that by 2055, 84% of all U.S. homes could suffer devaluation, amounting to $1.47 trillion in losses. Jeremy Porter, head of climate implications research at First Street, emphasizes that climate change is now a tangible force reshaping real estate markets and regional economies across the nation. The report projects a national average insurance cost increase of 25%, with 14% attributed to previously underpriced risks and an additional 11% due to escalating climate threats. While the average property value impact is estimated at a 3% decline nationally, certain areas, particularly in Texas, Florida, and Louisiana, may see home values reduced by up to 50%.
High-vulnerability regions, especially coastal areas and states like Florida, Louisiana, and California, face a compounding crisis. The intersection of rising insurance premiums, frequent natural disasters, and declining property values is straining both homeowners and insurance systems. In states such as Florida, Louisiana, and California, taxpayers already subsidize homeowner insurance premiums due to the inability of private insurers to bear the mounting risks alone. In Florida, the state-owned insurer, Citizens Property Insurance Corporation, has become the largest insurer, a testament to the scale of market withdrawal by private companies.
California is among several states grappling with the growing frequency and intensity of climate-related disasters. Over recent years, the financial burden on the insurance industry has escalated, driven by catastrophic wildfires, prolonged droughts, and extreme weather events. Many private insurers, unable to sustain losses or raise premiums due to state-imposed price controls, have either stopped issuing new policies or left the state entirely. In response, California implemented government-subsidized homeowners’ insurance programs to provide coverage for those left without options. However, these systems, including the state-backed FAIR Plan, quickly became overburdened. The FAIR Plan, originally conceived as a safety net for homeowners in high-risk areas, has seen a surge in demand as private insurers retreat.
As climate-related disasters—such as hurricanes, wildfires, and floods—increase in both frequency and intensity, the economic strain on both taxpayers and insurance systems is becoming unsustainable. Florida’s reliance on taxpayer-backed insurance, for instance, exposes state finances to significant risk, particularly after events like Hurricane Ian in 2022, which caused catastrophic losses. Taxpayer-funded bailouts of insurance systems and rising deficits could divert resources from other critical areas, further exacerbating economic instability.
The real estate market in high-risk areas is already experiencing significant challenges. As insurance becomes increasingly difficult to obtain or afford, property values are declining, leaving homeowners facing the growing risk of being unable to sell or refinance. While liquidating properties in these areas may help mitigate individual financial risks, widespread devaluation could have far-reaching economic consequences, potentially leading to localized housing market collapses.
In summary, the convergence of escalating climate risks, rising insurance costs, and declining property values poses a substantial threat to the U.S. housing market. Proactive measures, including investment in resilient infrastructure, transparent risk assessment, and strategic policy reforms, are essential to mitigate these impacts and safeguard both homeowners and the broader economy.