Climate Change to Wipe Away $1.5 Trillion in U.S. Home Values

Investment Analysis Clubs Macro Economic Trends and Risks
1

https://www.wsj.com/real-estate/climate-change-to-wipe-away-1-5-trillion-in-u-s-home-values-study-says-60c6970b?mod=hp_lead_pos9

Climate Change to Wipe Away $1.5 Trillion in U.S. Home Values, Study Says

Rising home-insurance costs and more homeowners spurning some risky neighborhoods will drive these declines, according to First Street

By

Nicole Friedman

and

Deborah Acosta

Feb. 3, 2025 Climate Change to Wipe Away $1.5 Trillion in U.S. Home Values, Study Says

Rising home-insurance costs and more homeowners spurning some risky neighborhoods will drive these declines, according to First Street

By Nicole Friedman and
Deborah Acosta, The Wall Street Journal, Feb. 3, 2025

Climate change will cause a $1.47 trillion decline in U.S. home values by 2055, according to a new study from climate-research company First Street.

Rising home-insurance costs and more homeowners spurning some risky neighborhoods will drive these declines, First Street said.

The study is an attempt to quantify the economic risk that weather events such as hurricanes, drought and heat waves pose to many Americans’ biggest financial asset—their homes…

First Street projects the hardest-hit places will have rising home-insurance costs and population declines. The counties with the biggest projected population loss over the next 30 years are Fresno County, Calif.; Ocean County, N.J.; and Monmouth County, N.J.

Other regions are projected to have higher home-insurance premiums but continued population growth over the next 30 years, because strong local economies or other amenities are drawing people to those areas. These include counties in the Houston, Miami and Tampa, Fla., metro areas. … [end quote]

Here is the link to the research:

This is a long article with 10 takeaways. Valued at $50 trillion, residential real estate is the bedrock of the U.S. economy – nearly double the country’s $27.4 trillion GDP. The issue is clearly Macroeconomic. By 2055, 70,026 neighborhoods (84% of all census tracts) may experience some form of negative property value impacts from climate risk, totaling $1.47 trillion in net property value losses due to insurance pressures and shifting consumer demand.

The article fails to mention one Macroeconomic impact that came from the last episode of massively overvalued property: the financial crisis from lenders whose collateral value is collapsing. Overvalued properties (some with eventual zero value because they will be uninsurable or even under water) will have to be taken out of someone’s bottom line. Will this be gradually increasing pain or a sudden collapse like 2008? Time will tell.

Wendy

2 Likes
2

30 years is a ling time.

Per the banks, a home has an economic life of 50 years. In other words, every year all of the housing stock from 50 years ago becomes worthless.

If you go gross and say 2 percent of the housing stock becomes worthless every year, then roughly 25 trillion dollars worth of housing stock will become worthless in 30 year. That dwarfs the 1.4 trillion. I know, I know, the numbers of houses built in 1975 are less than the number houses built in 2025, and the value of the houses built in 1975 is lower than the value of the houses built in 2025. But in reality, the losses will be in high value water front, but most water front is old anyway. My relatively new waterfront condo is now 20 years old. By 2055 the cool features of 2005 will be obsolete.The cost of maintenance will be high as will the cost of insurance diminishing the value of the condo and the building it is in considerably. At some point the building and the neighborhood it is in will need to be razed and rebuilt. If it can’t be rebuilt due to climate change the only loss will be the loss of the land value as the value of the structure will have already evaporated.

Cheers
Qazulight

9 Likes
3

There are about 147M homes in the US. 1.47T / 147M = $10K per home. If my math is correct, that isn’t a lot, if evenly distributed. And over 30 years it is just $333 per year.

Mike

2 Likes
4

It won’t be evenly distributed, which is the point of the report if one reads it.

The three largest Sun Belt states (Texas, Florida, and California) have absorbed over 40% of the nation’s $2.8 trillion in natural disaster costs since 1980.

That’s where insurance costs are going to rise and home values decline the most.

First Street’s climate migration projections predict that over 55 million Americans will voluntarily relocate within the U.S. to areas less vulnerable to climate risks by 2055, starting with 5.2 million in 2025.

People are projected to leave those states for more stable pastures. Already happening in CA. Florida will almost certainly be next. It is already estimated that as many as 20% of Floridian homeowners don’t have home insurance. One or two more bad hurricanes and the exodus will begin. Especially in an era of small government.

Also consider the fact that Americans don’t seem particularly good at saving for retirement and are probably overly dependent on their home increasing in value to provide a nest egg that they can mortgage or downsize from upon retirement. I wonder how many Floridians and Californians would be in financial difficulty if their home values remained flat over the next 20 years.

8 Likes
5

They can’t make any of this climate change stuff work without the misrepresentation. It’s just planting the seeds now to make ruining ordinary people later by business interests sound “normal.”

6

One needs only to follow the money: home insurers certainly accept climate change if rates are any indication.

Pete

1 Like
7

Yep. You want to maintain as small a real estate footprint as possible, preferably as a renter.

intercst

1 Like
8

Don’t those states comprise about 30% of total population? If so, then while their overall natural disaster costs are higher than the rest of the country, they are only a little higher on average.

1 Like
9

I looked it up in census.gov. Florida, Texas and California only hold about 27 percent of the population of the country. So 40 percent of the disasters would put the disaster dollar rate about 50 percent above normal.

The problem is that North Carolina in the mountains got hit by a freak natural disaster. This makes me believe that we have little idea of what the changing climate will do. In 2010 we had a terrible drought in East Texas. It was so bad that we were running out of water to fight the forest fires. (It was so bad the fish were jumping in the boat to try to get a drink from our cooler) :joy:

I recall people worrying about the next mutation of the Covid virus. As it mutated it became less lethal. Actually this is what I expected, but weather? Hum, who knows maybe it will end in an apocalyptic fire storm. Then again maybe the dessert will turn green and we will all live in the blue lagoon.

Cheers
Qazulight

7 Likes
10

Sad to say that we are heading that way. Owning your own home used to be about controlling your costs, but between the escalating mortgage rates and taxes, increased threat of catastrophic loss, control is no longer in your hands and we are putting our primary on the sale block next month. We will still have a home base that is much lower in value than our current home, and will use the freedom gained with the sale to live globally via furnished rentals. I’ve tried to encourage Eldest to do the same, rather than buy. Since he works from home and is unattached, this is a golden moment to go explore. It’s a paradigm shift for me. I have been very gung ho on real estate investments until the past few years. We have done very well with it, but I think it’s time to find a different mode of living and investment going forward. Many catastrophes looming, including political, and we intend to find a place to enjoy that has the added benefit of our family being able to join us there…assuming we are welcomed.

IP,
who can’t help but feel as though we are living out a season of Handmaids Tale

9 Likes
11

Except that all of us, men as well as women, are the handmaids.

Pete

4 Likes
12

Yikes!! The home I am living in right now became worthless 33 years ago?

Please don’t tell Ms. Wolf :grin:

2 Likes
13

The house I grew up in, which was built in 1930 and bought by my grandparents, currently has an estimated value of $2,486,000. The first house I bought for myself was built in 1925 and currently has an estimated value of $582,000. Both photos show them to be well-maintained. They are both solidly built and probably will go strong for another 50 years.
Wendy

5 Likes
14

My father bought the home I grew up in for $13,000 in 1960 in what over time became a crime-infested urban neighborhood. Zillow tells me it’s worth $250,000 today.

An investment of $13,000 in the S&P 500 in 1960 would be worth $8.3 million today.

Warren Buffet pointed out that if you put $10,000 into an index fund in 1942 when he bought his first share of stock, you’d have $51 million today. Understanding “Rent vs. Buy” is the ticket to a life of wealth & leisure.

intercst

3 Likes
15

No, but what you’ve spent on mortgage payments, taxes, and maintenance over the years, plus the low investment return and opportunity cost on your down payment, likely exceeded the rent on an equivalent property.

intercst

16

Is the house worth $2.48M or is the land worth $2M and the house worth $0.48M? I think the point is that houses, at least US wood-framed houses, wear out and eventually need to be replaced. Some European houses last hundreds of years, but still need periodic large renovations to modernize them.

1 Like
17

You could probably replace a whole neighborhood of wood frame homes for the cost of renovating a marble European palace.

That’s why Italy has so many $1 homes for sale.

intercst

1 Like
18

The value of expensive homes in desirable neighborhoods in high cost cities is mostly in the land. Location, location, location. Supply and demand drive the value of a location. As a kid I heard, invest in land, they’re not making more of it. That ignores the demand side.

There’s no demand for dilapidated homes in depopulated Italian towns with no jobs and no future, even for $1. There’s no demand for beachfront property after sea level rise and storm erosion move the beachfront to the backyard. It seems that forest fires are different, and their impact on demand fades after a few years as people rebuild.

3 Likes
19

That assumes disasters and their costs are evenly distributed. Disaster losses in the US and globally are dominated by hurricanes/typhoons. IIRC, earthquakes come in second.

Sort of. Natalie Mahowald at NCAR (National Center for Atmospheric Research) modeled future desertification. She wrote:

If I assume no carbon dioxide fertilization, the mean of the model predictions is that desert areas expand from the 1880s to the 2080s, due to increased aridity. If I allow for carbon dioxide fertilization, the desert areas become smaller.
https://agupubs.onlinelibrary.wiley.com/doi/full/10.1029/2007GL030472

DB2

2 Likes
20

We have had a choice between continuing on with the building of more factory floor space to create economies of scale…versus tearing it all down.

We do not need the excuses. We are now in the process of tearing it all down.

TI is having it his way.