Shaina Mishkin
Forget about square feet and the number of bathrooms. Home buyers now will also be asking about the weather.
Many people move to areas endangered by extreme weather events because the lifestyle and cost of living outweigh the risks. But that is changing, with soaring insurance costs and two recent devastating hurricanes underscoring the issue.
Home listings giant Zillow Group is rolling out climate-risk estimates that size up a home's likelihood of damage from flood, fire, and wind over the next 30 years. These scores, along with soaring insurance costs, could change the economics of where people choose to live, as buyers avoid homes with high risk or face fewer bidding wars to buy them.
Hurricanes Helene and Milton, which separately hit the Southeast last autumn, may have caused up to $81.5 billion in combined insured and uninsured losses, according to estimates by CoreLogic, a property data and analytics provider.
"We've seen this massive move of people since the pandemic from the Northeast and Midwest into Florida," says Moody's Analytics chief economist Mark Zandi. "That now is in jeopardy because of the threat of storms like this and what it means for the cost of owning a home."
A house's risk of flood or wildfire usually isn't as apparent at first glance as an ugly bathroom or cramped kitchen. But now, Zillow is joining home listing websites like Redfin, Realtor.com, and CoStar Group's Homes.com by adding scores provided by climate-risk modeling company First Street. ( News Corp, which owns Barron's, also owns Realtor.com operator Move.)
Zillow may not be the first to add First Street's scores but it's the largest, with 233 million average monthly unique users. That means its rating system will be seen by many more people. Zillow users can find a listing's score about halfway down the page on its website, underneath its payment calculator section. Not every home has a score.
First Street builds models based on historical data, climate projections, and statistical analysis to determine the probability that a property could see flooding, wildfire, dangerous winds, or other detrimental weather-related events, even if it hasn't in the past. On listings websites that use the data, this appears as a score from one to 10 across five risk categories.
"For people who exclusively use Zillow, this will be the first time they really have seen this information, whether it's on their property or in the search process," says Jeremy Porter, head of climate implications at First Street.
The tool gives buyers another data point to consider, similar to how they size up a neighborhood's downtown or school district online, says Porter.
Homes with better climate scores could become more sought after while those with worse readings could see lower prices, according to a National Bureau of Economic Research working paper co-written by Redfin's chief economist, Daryl Fairweather, and researchers from the University of Southern California, Columbia University, and the Massachusetts Institute of Technology.
To test the impact of risk scores, Redfin displayed First Street's flood ratings to some users but not to others. The information changed some users' behavior on searching and buying, Fairweather says. Compared with a control group, users who viewed homes with high-risk scores instead made offers on properties that were about half as risky. The scores also drove up competition for less-risky homes, increasing prices slightly, and reduced demand for some high-risk homes.
"The flood risk information had a tangible effect on property prices, with homes in high flood risk areas experiencing a decrease in value," the authors wrote.
The tool isn't the only way that prospective buyers can learn about their dream homes' weather risks. The Federal Emergency Management Agency also maps potential hazards through its National Risk Index and maintains maps that designate which homes require flood insurance.
A buyer should consider First Street's scores as a starting point for further research, says Collyn Wainwright, the president of the Greater Nashville Realtors board of directors. "I would encourage consumers to use it as a guideline to then ask more questions about a property," she says. "Talking to your homeowners' insurance agent or broker is going to give you a much clearer, [more] accurate picture of what the risk is for that particular home."
Insurance is an issue that increasingly is tied to climate risk. In fact, rising premiums are the first way that many homeowners feel the impact of storm risks, says Ben Keys, a real estate professor at the University of Pennsylvania's Wharton School. "Getting any sort of credible information about a property's climate risk is a big step in the right direction," says Keys, who co-wrote a separate National Bureau of Economic Research working paper on climate risk and property insurance last year.
Premiums, unlike monthly mortgage payments, aren't a fixed cost. They can be more difficult to estimate than home prices and mortgage rates, which are easily available online. That means buyers could be in the dark about potential costs until late in the purchase process.
Keys' research found that premiums rose 33% from 2020 to 2023, with those climbing sharply in areas that FEMA deems to be at higher risk.
In the long run, climate risk could alter migration patterns -- whether it's because of cost of disasters or insurance. But consumers don't need to dismiss an area solely based on an area's risk rating. It's cheaper to pay to make a home more resilient than to replace it after disaster strikes, notes John Rogers, chief data and analytics officer at CoreLogic, which sells an analytics tool that helps insurers size up the resilience of individual homes to storms. "Every one dollar that you invest in resiliency [in a] home is equivalent to six dollars to recover the home if that weather event was to occur," he says.
A person's home is "the biggest way that Americans make wealth," he says. "It's definitely worth protecting."
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 07, 2025 03:00 ET (08:00 GMT)
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