In Florida: Hints of a Climate Real Estate Crash

October 16, 2020

New York Times:

If rising seas cause America’s coastal housing market to dive — or, as many economists warnwhen — the beginning might look a little like what’s happening in the tiny town of Bal Harbour, a glittering community on the northernmost tip of Miami Beach.

With single-family homes selling for an average of $3.6 million, Bal Harbour epitomizes high-end Florida waterfront property. But around 2013, something started to change: The annual number of homes sales began to drop — tumbling by half by 2018 — a sign that fewer people wanted to buy.

Prices eventually followed, falling 7.6 percent from 2016 to 2020, according to data from Zillow, the real estate data company.

All across Florida’s low-lying areas, it’s a similar story, according to research published Monday. The authors argue that not only is climate change eroding one of the most vibrant real estate markets in the country, it has quietly been doing so for nearly a decade.

“The downturn started in 2013, and no one noticed,” said Benjamin Keys, the paper’s lead author and a professor of real estate and finance at the University of Pennsylvania’s Wharton School. “It means that coastal housing is in more distress than we thought.”

The researchers identified a decline in sales in low-lying coastal areas beginning in 2013, followed a few years later by a drop in prices compared with safer areas. On less vulnerable land, sales and prices continued to grow.

The idea that climate change will eventually ruin the value of coastal homes is neither new nor particularly controversial. In 2016, the then-chief economist for the federal mortgage giant Freddie Mac warned that rising seas “appear likely to destroy billions of dollars in property and to displace millions of people.” By 2045, more than 300,000 existing coastal homes will be at risk of flooding regularly, the Union of Concerned Scientists concluded in 2018.

The question that has occupied researchers is how soon, and how quickly, people will respond to that risk by demanding price discounts or fleeing the market. Previous research has begun to tackle that question, showing that climate change, far from being a distant threat, is already starting to hurt real estate values.

The paper released Monday by the National Bureau of Economic Research takes a different approach; it focuses not on price declines, but instead tries to detect an earlier signal of trouble, a decline in the number of houses changing hands.

Falling sales have been a reliable predictor of price drops in previous housing crashes. A drop in home values follow a common pattern. First, prospective buyers become reluctant to pay the price that sellers are asking. But sellers, not wanting to take a loss, often hold out for months or even years, before grudgingly starting to accept lower bids.

Dr. Keys, along with his co-author Philip Mulder, a doctoral student at Wharton, wondered if the same pattern could predict a climate-induced housing crash.

To find out, the pair looked at Florida, with more miles of low-lying coastal land than any other state. Examining data for 1.4 million home sales over 20 years, they compared two types of coastal census tracts: Those on the most exposed land, where more than 70 percent of developed land is less than six feet above sea level, and also in higher areas, where less than 10 percent of developed land meets that criteria.

For most of that time, home sales in both areas rose in lock step, suggesting that buyers weren’t particularly concerned about climate risk.

Then, starting in 2013, something started to change. While sales in safer areas kept climbing, sales in vulnerable ones began to fall. By 2018, the last year for which Dr. Keys and Mr. Mulder obtained data, sales in vulnerable areas trailed safer areas by 16 percent to 20 percent.

To find the whether the flood risk for your home will increase in the next 30 years, visit Floodfactor.com – an online tool from insurance companies in consultation with scientists. (Your real estate agent and prospective buyers will be checking there for sure…)

3 Responses to “In Florida: Hints of a Climate Real Estate Crash”

  1. rhymeswithgoalie Says:

    When will Fannie Mae and Freddie Mac stop buying 30-year mortgages in problematic places?
    I am OK with transient government subsidies on insurance premiums, but with a hard policy of how long they’ll be available.

  2. Keith McClary Says:

    “National Bureau of Economic Research”
    I always like to check who funds these organizations:

    Click to access CorporateSupporters2020.pdf

  3. smithpd1 Says:

    The real hit will come as these homes become uninsurable. Also, fair weather flooding it’s becoming increasingly common in Miami, although maybe not yet in these luxury home neighborhoods. I would never choose to move to Florida.


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