Climate change is transforming the American housing market, influencing everything from insurance rates to buyer behavior.
Recent analyses reveal significant generational differences when it pertains to purchasing decisions and climate risks. For example, more than half of millennials and Gen Zers—56% and 50% respectively—factor climate change when choosing where to live. This stands in stark comparison to only 31% of baby boomers who do the same, according to findings from Redfin. Younger buyers increasingly evaluate prospective homes through the lens of climate vulnerability, often avoiding regions prone to extreme weather events.
On the other hand, older Americans appear to be gravitating toward climate-risk areas at higher rates than younger counterparts. A report shows 36.9% of home purchases by buyers aged 65 and older occurred last year within counties facing significant heat risks, versus 32.3% for those under 35. Flood and fire risk patterns reflect similar trends, with 13.3% of older purchases made in high flood-risk areas against 9.8% for younger buyers. This migration is particularly pronounced in popular retirement destinations such as Florida, appealing for its tax benefits and warm weather even as it faces increasing risks from climate change.
Florida has historically been favored by retirees, offering no income tax on retirement earnings. Yet, the tide is turning as rising insurance costs, homeowners’ association fees, and property taxes—exacerbated by climate-related disasters—start to curb its desirability. Redfin's analysis highlights dire statistics: 96.2% of homes in counties attracting older homeowners last year are marked by high heat risks compared to 59.2% where younger buyers bulked up their purchases.
Interestingly, not only generational trends but also market pressures are driving relocation decisions. Research from Freddie Mac indicates the pandemic accelerated moves to warmer climates with low density, emphasizing views and outdoor lifestyles.
Meanwhile, California has adopted new regulations intended to improve home insurance access amid shrinking offers from major carriers due to rising catastrophe threats. The recently enacted rule allows insurers to use futuristic climate catastrophe models rather than relying on historical data alone—an important shift acknowledged by State Insurance Commissioner Ricardo Lara. Starting January 2, carriers must increase their presence by as much as 85% in high-risk areas, boosting home insurance accessibility for vulnerable regions.
The backdrop of these regulations is California’s tumultuous wildfire season, already leading to catastrophic losses. Major players like State Farm and Allstate have retreated from the market, leaving many homeowners reliant on the state’s last resort insurer, the California FAIR Plan, which is facing ballooning liabilities as its policyholders jump from 203,000 to 452,000 over the past four years.
Insurance costs have skyrocketed due to multifaceted challenges. A combination of labor shortages, inflation, and rising reinsurance costs tied to unpredictable weather events continues to grip the property insurance sector. Underwriting losses reportedly reached $47 billion during 2022 and 2023, signaling grave concerns for property insurers as they navigate increasingly perilous claims—a reality bearer proof during California's raging wildfires.
It's not just Californians experiencing strain; those across the U.S. are feeling the pinch—about 10% of homeowners are now opting to forgo insurance altogether, double the recent figure. Many Americans must make difficult calculations: Can they manage skyrocketing premiums, or do they need to sell before the crisis deepens?
Whereas insurers used to calculate risks based on collective experiences, the current dynamics complicate standard calculations, leading to rising premiums and unexpected gaps in coverage. It has become imperative for prospective buyers to seek out insurance histories of properties, opting for Comprehensive Loss Underwriting Exchange (CLUE) reports akin to credit scores to vet potential home risks. Fascinatingly, even beyond traditional measures, real estate brokers are now reporting motivated clients seeking to understand insurance impacts before finalizing residential deals.
Despite the challenges, some industry watchers are optimistic about developing solutions. For example, real estate agents are advised to leverage relationships with local environmental managers to facilitate client access to resources related to climate adaptation. Measures such as improving building codes or neighborhood climate action strategies are becoming increasingly relevant components of real estate strategy.
Another movement within the industry encourages brokers and buyers alike to shift focus from climate-risk-heavy areas toward 'climate havens'—regions less exposed to extreme weather threats. The hottest mid-tier properties, previously seen as risky, are now becoming desirable as younger buyers seek sustainable living conditions alongside professional opportunities.
With climate change becoming the new forefront of American real estate decision-making, the challenges for buyers and insurers alike are getting tougher to overcome. The stark generational divide and rapidly shifting market realities mean the future of home insurance and ownership may look vastly different. The question now remains: can the market adapt to these increasing climate risks, and will buyers reshape their expectations accordingly?
