MW Home prices only beginning to feel the bite of climate change, J.P. Morgan analysts warn
By Aarthi Swaminathan
'There is now a clear negative relationship between climate risk and house-price appreciation,' analysts say
Home prices are reaching new all-time highs, but those prices may be built on outdated assumptions about climate risk, J.P. Morgan analysts warned in a new note.
Despite the increased frequency and intensity of natural disasters, the real-estate industry has until recently failed to factor in the effects of climate risk on home prices.
In fact, starting in 2000, home prices on average went up faster in areas with greater climate risk, the J.P. Morgan analysts said. But that changed starting in 2023, the analysts found.
"Climate change has only recently begun to bite in the U.S. real-estate market," they said in a report published Nov. 8. "The evidence suggests to us that the effect will only grow stronger."
Using data from the Federal Housing Finance Agency, the J.P. Morgan analysts found an emerging connection between how risky a home's location is and the home's growth in value.
And the findings were noticeable: "There is now a clear negative relationship between climate risk and house-price appreciation," they said. The analysis looked at a variety of climate-related risks including storms, wildfires, extreme heat, flooding, rising sea levels and drought.
Since the start of 2023, home prices "in riskier areas have started to rise more slowly than those in less risky areas," the analysts found.
"Cumulatively, house prices are still up more in higher-risk areas since 2000, but our analysis suggests this difference is fading over time and should eventually reverse," they added.
Real-estate industry brings climate risk to the forefront
The real-estate industry has been trying to make the millions of users who frequent popular platforms such as Realtor.com, Redfin $(RDFN)$, and Zillow (Z) more aware of how climate risk could affect their home purchase.
(Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp.)
The companies are trying to shine a light on climate-related increases in the ongoing costs of homeownership, such as skyrocketing insurance premiums and the rising costs to rebuild in disaster-prone areas. The companies' efforts to show buyers more climate-risk data comes from a concern that buyers need to know the potential risks as they make one of the biggest purchases in their lives.
Read more: Buying a house? The real-estate industry is sounding the alarm about an increasingly expensive risk.
'Nowhere is truly immune' to climate risk
Nonetheless, those risks have yet to be fully reflected in home prices, the J.P. Morgan analysts said.
People were moving toward high-risk parts of the U.S., they added, instead of moving away.
But climate risk is finally beginning to be reflected in home-price growth. Rising home-insurance costs, for example, have been pushing property values down. "It has been recently documented that property-insurance expenditures have risen sharply in riskier areas since 2020," the analysts said, "even after adjusting for inflation."
People were also becoming more aware of climate risks. About one in five consumers who had seen the impact of Hurricane Helene in September said they're reconsidering where they want to move to in the future, a recent survey by Redfin found.
"Americans are beginning to realize that nowhere is truly immune to the impacts of climate change," Daryl Fairweather, chief economist at Redfin, said in a statement.
"And we're starting to see that impact where people want to live - even people who haven't experienced a catastrophic weather event firsthand," she added.
Read more: Where home-insurance costs are rising the fastest in the U.S. - it's not California or Florida
-Aarthi Swaminathan
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(END) Dow Jones Newswires
November 11, 2024 16:15 ET (21:15 GMT)
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