Redfin started displaying climate risk data in 2021 to help prospective buyers better understand climate risks for fire, flood, heat, drought, and storm over a 30-year period for any area in the U.S.
Even with information about risks, there’s been an increased demand for fire-prone and flood-prone areas, despite the slow recovery of market value after a fire- or flood-related disaster.
So, why is demand for high-risk areas going up rather than down? What is it about these endangered properties that make them so attractive?
And what can real estate agents do to help their climate minimize the risks?
Populations in high-risk areas have gone up
From 2016 to 2020, the 50 counties with the highest percentage of homes facing a high risk of fire or flood saw 3% and 1.9% increases (respectively) in their populations due to positive net migration.
The pandemic hasn’t slowed down the migration; if anything, more people are moving to high-climate-risk areas—for reasons that take priority in the minds of homebuyers.
Purchases of second homes with high heat, flood, or storm risk have also risen by 40% over the past two years.
Minimizing climate risk is not a top priority for buyers
CNN reported the same phenomenon last August: “Climate change be damned. More Americans are moving to high-risk areas.”
Most of them have seen an increase in their populations over the past five years.
Miami, for example, has been in the path of one hurricane after another. Yet people keep flocking to it—as well as to other hurricane-prone areas. Scott Durkin, CEO of Douglas Elliman, pointed to lower taxes as one of the reasons, though it’s not the only one.
I think people continue to put [climate risk] in the back of their minds. I think there are people that will do anything to be on the ocean and the coast of Florida and nothing, nothing will deter them.
Consumers are paying a premium for high-risk homes
According to Redfin’s research, homebuyers paid a premium for high-fire and high-flood-risk homes during the pandemic.
Homes in fire-prone suburbia have seen an increase in homebuyer demand over the past two years. In April 2020, the median price for U.S. homes with a high fire risk was $550,500—27.6% more than the median price of a house with low fire risk ($431,300).
The same trend holds true for flood-prone areas. The median sale price of homes with high flood risk in the first quarter of 2021 was $402,010, compared to $353,783 for low-flood-risk homes. Meaning buyers paid a record 13.6% premium for flood-prone homes—up from a premium of 10.1% in the first quarter of 2020.
Not only are buyers paying more for high-risk homes, but the premium over low-risk homes has actually gone up.
So, what is it about these areas that makes them worth paying extra, despite the risks?
Trends in homebuyer priorities
Daryl Fairweather, chief economist at Redfin, has been tracking consumer trends with respect to high-climate-risk areas.
Counterintuitively, people are moving to places with higher climate risk. And it seems like climate, although it’s something that people care about, is at the bottom of the list or it’s not the top priority.
A telling example of this is Wasatch County, Utah, which lies just outside Salt Lake City and which has the third-highest fire risk in the U.S. According to Redfin’s research, 96% of Wasatch County homes are at high risk. Yet migration has gone up by almost 15% in the past five years.
The area has grown even more popular in the last year, with homebuyers prioritizing affordability, more space, and proximity to the outdoors.
Affordability is a major factor for many homebuyers moving to high-risk areas. So it helps that over half of the 50 counties with high heat and storm risk had a median sale price below the national average.
With housing prices increasing, it seems more homebuyers are likely to overlook the risks and buy homes they can more easily afford to build equity and enjoy other attractions.
Homebuyers are aware of the risks
According to a Redfin survey, 63% of people who moved to higher-risk areas during the pandemic believed climate change was or would be an issue in the areas to which they moved.
Broadly speaking, homebuyers are aware of the risks. They know about recent climate-related disasters like the floods in Kentucky and Missouri, the wildfires in California, and the heat waves across the U.S.
The fact that natural disasters like these are intensifying is hard to miss. And yet people are still moving in greater numbers to disaster-prone areas.
Ask them why, and their reasons usually include the following:
- Natural beauty / scenic landscapes
- Wide open spaces (with visible stars)
- Easier access to nature
- Less crime than their previous (low-climate-risk) neighborhood
- Peace, quiet, and minimal crowding
- Proximity to tech businesses for career advancement
Resources for homebuyers in high-risk areas
Homebuyers looking at high-climate-risk areas should know exactly what they’re getting themselves into. And once they’ve chosen a home, they need to know what they can do to minimize the risks of losing all their belongings in a climate-related disaster.
It’s one thing to have a general idea of the climate risks for a particular area. To more accurately assess the risks, real estate agents can direct homebuyers to the following tools:
To minimize climate risks, real estate agents should make their clients aware of the following:
- Flood insurance from the National Flood Insurance Program (NFIP), which will likely be required for properties located in a FEMA high-risk flood zone.
- FEMA advice on how to protect your home from flooding and wildfire.
- Energy-efficient upgrades like solar panels, improved insulation, and energy-efficient windows and home appliances.
That last one is more about saving money on utility costs, which can help homeowners put more money aside in a recovery fund in the event they lose their homes to a climate-related disaster.
What are you doing this week to educate yourself on the risks and to help your clients manage them?