The bulk of household wealth (67%) is tied to the primary residence. (Credit: Romar66/AdobeStock)
Climate change — and increasing insurance needs — could sink property values in certain areas of the United States by more than $1 trillion over the next 30 years, according to a new study from First Street.
The shift will re-shape U.S. population patterns, with some states coming out ahead and others losing big time. By 2055, First Street’s models predict that properties in “climate abandonment” areas stand to lose $1.47 trillion in value, while those in “climate resilient” neighborhoods could gain $244 billion.
Residential real estate in the United States is valued at $50 trillion currently, and nearly two-thirds of U.S. adults are homeowners. The bulk of household wealth (67%) is tied to the primary residence.
For the last several decades, migration patterns in the country have been driven largely by quality of life and affordability, with many flocking to the Sun Belt — the southern portion of the country. Texas, California and Florida have been the fastest growing states since 2000.
But in recent years, these states have also been some of the hardest hit by climate change, experiencing an increase in both severe weather and insurance costs. Since 2000, Texas has seen $434 billion in disaster costs, while California has seen $155 billion and Florida is at $401 billion.
The study found that, between 2013 and 2022, nationwide, insurance costs grew from about 8% of mortgage payments to 20% of mortgage payments, a 115% increase. And even as premiums have risen, insurers have struggled to stay profitable. In 2023, the combined ratio for home insurers was 110.5% — meaning companies paid out 10.5% more in losses and expenses than they brought in with premiums.
As climate change risks increase, the report projects that insurers will need to increase premiums over the next several decades by an average of 29.4% just to break even. But residents of disaster-prone areas will need to pay much more. The report forecasts premium increases of 137% for Sacramento, Calif., 196% for New Orleans, 213% for Tampa and 322% for Miami, for example.
As a result, disaster-prone areas could see a significant drop in property values as those areas become less desirable. First Street uses Paradise, Calif., as a case study. After the Camp Fire in 2018, the city saw insurance costs rise 36.8%, and its population dropped by 68.8%. Property values dropped by 42.1%.
By 2055, First Street’s model finds that 70,026 neighborhoods could experience some form of negative property value impacts due to climate risk. Climate abandonment areas stand to lose 38% of their population, while climate resilient areas could gain 68%. Florida’s Broward County for example, could see a 76.2% decrease in property values, while Dane County in Wisconsin, could see a 13.5% increase.
“With residential real estate representing one of the largest economic sectors in the country, these shifts will result in serious impacts that ripple through communities,” the report says. “Understanding these dynamics is crucial as public and private stakeholders navigate an increasingly complex landscape where housing decisions must balance traditional location value drivers with new climate realities.”
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