- JPMorgan says homebuyers are still moving to counties most exposed to climate damage.
- This effect has led to approximately 40% higher home prices in these areas compared to lower-risk areas.
- But the company said rising insurance costs could ultimately dampen demand.
Even as extreme weather events wreak havoc on homes across the country, homebuyers continue to flock to the areas most at risk. As a result, home prices in the most dangerous areas are rising much faster than in safe areas, according to JPMorgan.
Since the turn of the century, home prices in counties most exposed to climate-related damage have risen by about 40% on average compared to other counties, say strategists Alexander Wise and Jean Royse. said.
Risks considered in the analysis included extreme heat, drought, wildfires, flooding, sea level rise, particulate matter, and hurricanes. The researchers then gave each county a composite climate risk score, measured against each region's home affordability index.
“On average, residential property prices have risen faster over the past 20 years in regions exposed to climate risks. This is what would be expected if climate risks were properly priced into the market. Quite the opposite of what should be,” they found. A similar trend is observed when adjusting for GDP growth.
A positive relationship between increased climate risk and population growth was also found, indicating that more people are moving out of these regions than leaving.
JPMorgan's view is that homebuyers may simply not be paying attention to weather risks, which are further encouraged by government efforts to rebuild properties in affected areas. Some simply don't want to sell and think they're too old to experience these rising costs.
“This means that it does not take into account the costs borne by individuals, whether these costs are realized through the direct effects of climate change or through reduced resale value due to increased future climate risks. “This may be irrational in the sense that it does not take into account,” the analysts said. I have written.
Redfin similarly noted in July that more people are moving into disaster-prone areas than moving out, citing the pandemic-driven housing boom and ongoing affordability crisis as key drivers of this trend. He pointed out that there were far more.
For example, net migration to counties at risk of flooding increased by 103% between 2019-2020 and 2021-2022, and areas at risk of wildfire increased by 51%.
But changes to property insurance could force prospective buyers to pay more attention to climate risks, JPMorgan said. Rising premiums could pressure ownership costs and depress demand.
It's already happening in markets like Florida. Both condo prices and sales in the state are down year-over-year as natural disasters distort insurance premiums, with average costs rising 40% last year alone, according to a Redfin report Monday. .
Indeed, insurance companies are raising premiums and leaving at-risk communities across the country alone. But the First Street Foundation estimated last year that an estimated 39 million homes were insured at prices that didn't reflect the increased risk, potentially leading to a market correction.
“This quarter of all real estate represents the current insurance bubble, which is likely overvalued due to underpricing of insurance products and subsidies for climate risks,” the report said in September. “
For now, JPMorgan said some households are protected from higher premiums by government initiatives, which could keep prices down.
