Natural disasters are gradually influencing U.S. housing prices, with homes in high-risk areas experiencing slower value growth compared to safer neighborhoods. According to real-estate brokerage Redfin, properties in wildfire-prone areas gained just 6.4% in value over the 12 months through June 2024, underperforming low-risk homes by less than half a percentage point. While these “disaster discounts” remain modest, rising insurance premiums and heightened awareness of climate risks could make vulnerable properties less appealing to buyers in the future.
Rising Insurance Costs Impact Home Affordability
Insurance providers are adjusting premiums in response to escalating natural disaster risks. Homeowners in California’s Pacific Palisades, where wildfires recently destroyed thousands of homes, face projected annual premium increases of 11% for at least a decade, according to climate-risk modeling company AlphaGeo.
In flood-prone Grand Isle, Louisiana, average annual insurance premiums have climbed to nearly $11,000, accounting for 5.7% of the $194,000 average home value in the area. Despite these costs, home prices in such areas continue to rise, albeit at a slower pace.
The True Cost of High-Risk Properties
A study by First Street Foundation highlights the potential financial impact of rising insurance premiums on property values. For instance, an increase in annual premiums from $1,400 to $3,200 could theoretically reduce the value of a $296,000 home by 12%.
However, buyers face challenges in understanding how much to discount properties due to incomplete insurance risk pricing. Some states regulate premiums, preventing insurers from fully reflecting flood and fire risks. Additionally, cross-subsidization—where safer areas help offset losses in high-risk regions—obscures the true cost of owning a vulnerable property.
Transparency and Tools for Buyers
New regulations are improving risk transparency for homebuyers. California requires disclosure of wildfire risks in property deals, which has resulted in homes in flagged areas selling for 4.3% less than properties without risk disclosures. Florida’s House Bill 1049, enacted in October 2024, mandates flood risk disclosures for home sales.
Online platforms like Zillow and Realtor.com have also begun incorporating climate-risk data into property listings, offering buyers a starting point for evaluating potential hazards.
Mortgage Providers Join the Effort
Mortgage lenders are beginning to account for full-risk insurance premiums in affordability assessments. Freddie Mac, for instance, now requires lenders to use these premiums in payment-to-income calculations, potentially disqualifying some buyers from purchasing properties in high-risk areas.
Market Tightness Limits Discounts
Despite growing awareness of climate risks, tight housing supply constrains buyers’ ability to negotiate. The National Association of Realtors reported only 3.3 months of existing home supply available for sale as of December 2024—far below the six months typically needed to give buyers significant bargaining power.
As insurance costs rise and transparency improves, the long-term affordability and desirability of high-risk properties could decline, potentially leaving homeowners in vulnerable areas with fewer options when selling.