The last few years have not been kind to homeowners insurance premiums, especially for those living in states along the coast, where insurers and homeowners have to contend with rising oceans, more extreme hurricanes and wildfires. Some insurers have gone out of business, and others simply won’t do business in states such as Florida and California.
If you’re wondering how climate change will impact your home’s value, here are a few ways:
— Homeowners insurance is no longer an afterthought for buyers.
— There will be less demand for waterfront homes.
— Homeowners are paying higher insurance premiums.
— There will be higher property taxes.
— The total cost of owning a home will rise.
[What Homebuyers Need to Know About Climate Change]
Homeowners Insurance Is No Longer an Afterthought for Buyers
For decades, potential buyers didn’t think much about insurance when looking for a house. If you were buying a house, you thought about the cost of the mortgage and interest rates. You looked for a home in a good school district, with maybe a big backyard and away from a busy thoroughfare. You didn’t really think about homeowners insurance.
But people are thinking about it now.
“If your decision to purchase a home is solely a financial decision, then considering climate change should be high on the priority list,” says Tracey Ramsay, a real estate agent with RE/MAX Results in Duluth, Minnesota.
Ramsay says if she were buying a home, she would give serious thought about moving to a state that has been hit hard by climate change, naming Florida, California, Texas and Arizona as states that would concern her as a homeowner. She also points out that it isn’t just that hurricanes and wildfires are raising insurance rates, but thanks to factors such as extreme heat, “homeowners are also seeing a big increase in utility costs.”
Ramsay says she can envision a time when some areas of the country become basically uninsurable. She says many parts of the country with extreme weather “are now being reserved for the wealthy elite.” This would include homeowners who have additional homes in other parts of the country or who can afford to rebuild their homes without insurance.
“But even the wealthy will have their tipping point and will flee if the inconvenience and danger become too much,” Ramsay says.
For now, buyers aren’t abandoning areas that are harder to insure, says Bill Martin, CEO of insurance company Plymouth Rock Home Assurance in Boston. However, he says, “Many locations with high-risk characteristics remain popular with buyers, but buyers should be prepared for higher costs.”
There Will Be Less Demand for Waterfront Homes
While home values in coastal states such as Florida have been rising — 1.8% in the last year, according to Zillow — the tide may reverse soon, says Andrew Grigg, a geographic information systems specialist in Bolingbrook, Illinois, who tracks climate change trends and news on his blog, ClimateConduit.com.
“The summer thunderstorms and flooding are hazards and will continue to be, but they pale in comparison to wildfire and hurricanes,” says Grigg, who recently finished his first master’s thesis, an analysis of heat index variation in the Chicago area.
Griggs believes people will move from the Sun Belt to the Midwest and Rust Belt once it becomes clear that significant wildfire danger and an increase in major hurricane risks — plus unavailable and unaffordable insurance — are the new normal.
Martin says he is already seeing homeowners drifting away from places that historically have been highly desired.
“We are beginning to get reports of homeowners leaving areas where the cost of insurance is having an impact on overall cost of home ownership. This is happening particularly in catastrophe-prone communities,” Martin says. “These are towns that are at sea level, near coasts and rivers, or in high wind areas with lots of trees and ground vegetation. Wildfire, hail, tornado and hurricane-prone areas are increasing costs for owners.”
[A Homeowner’s Guide to Extreme Summer Weather]
Homeowners Are Paying Higher Insurance Premiums
Homeowners insurance premiums have gone up dramatically in recent years. For instance, according to S&P Global Market Intelligence’s RateWatch, in 2023, the average premium rate increase for owner-occupied homeowners insurance was 11.3%. In some states, in 2023, the rates were considerably higher. Texas, Arizona and Utah homeowners had their homeowners insurance premiums climb to the 20% mark and beyond.
Insurance premiums won’t stabilize any time soon, Martin says.
“The last 10 years have seen about 50% higher average annual catastrophe costs of the 50-year average, and the last five years have doubled the 50-year average,” he says.
Costs to repair and replace homes have shot up in recent years, which means that if an insurer wants to stay in business, premiums need to climb as well.
“Companies’ premiums are still catching up to the rapid increase in costs,” Martin says, adding that “most of the jump in costs comes from increasing costs of material and labor for repairs and higher liability claim costs.”
Liability claims, in this case, refer to scenarios such as a guest becoming injured on your property and then suing you.
“Claims are taking longer to settle, and homes longer to repair, increasing temporary living expense coverage costs as well,” he says. When insurers feel that they can’t charge any more than they already do, they’ll restrict who they do business with and even refuse to renew policies, Martin says.
There Will Be Higher Property Taxes
Experts predict that climate change will likely increase property taxes.
Many government officials say that if some communities are routinely drenched or demolished by hurricanes, flooding, wildfires and other natural disasters, residents will move away. If you live in an area of the country that routinely sees flooding and has fewer residents and a shrinking tax base, you could see your property taxes climb significantly. After all, somebody has to pay for your community’s infrastructure.
Officials in Olympia, Washington, where residents are dealing with rising sea levels, have discussed a dedicated property tax or sales tax to fund solutions to fight against climate change. If your community is constantly bombarded by weather events related to climate change, it seems likely and logical that eventually your property taxes will be affected.
[READ: 5 Things to Know About Buying a Home in a Flood Zone]
The Total Cost of Owning a Home Will Go Up
Martin sees trouble ahead for homeowners whose properties are battered by climate change.
“When the total cost of owning a home goes up, the market value of the home can go down,” he says.
When a home has high insurance costs, the amount of money left for mortgage, taxes, maintenance and furnishings drops, he says. This can depress the market value of a home.
And if you want to keep your costs low, or as low as possible? Martin suggests investing in making your home more resilient to climate change.
“Better location and better construction are less costly to insure,” he says. “Some homeowners have raised their homes above flood plains, and others have moved structures further from fire or water hazards.”
There are a lot of simple adjustments that could reduce risk and make your home more appealing to a carrier to insure, such as removing a tree that looks like it could topple on your house.
Martin also suggests carrying a higher deductible, as long as you can put aside money to pay for the deductible if something goes wrong.
“Think of it as health coverage,” he says. “You know you’ll have some level of accidents and weather claims you can afford to repair. Why pay an insurer for something you can save for, like you do with health savings accounts? If you can survive an extra month’s mortgage in any one year, I’d make sure your deductible is at least as high as your monthly mortgage payment.”
If you’re looking for a home and worried about climate change, talk to your real estate agent, says Courtney Klosterman, director of communications for Hippo Insurance.
“Your real estate agent should be your go-to person. They are a good resource for information on fire, flood, tornado and other risks in the community,” she says. You also might want to see if your community has a climate action plan.
“Take a look at the city’s or state’s climate action plan, how the specific neighborhood may be affected and plans for the future,” Klosterman says.
And if your community doesn’t have a climate action plan, you may want to come up with your own. Ignoring the potential impacts of climate change will not make the reality fade away.
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How Climate Change Could Impact Your Home Value originally appeared on usnews.com
