Data: First Street Foundation; Chart: Axios Visuals
A climate housing bubble threatens to erode real estate prices in much of the U.S. in the coming years, posing particular challenges for low-income residents, a new study finds.
Why it matters: With more severe and frequent extreme weather events, the resilience of homeowners and communities is on the line.
How lenders, insurance companies and others incorporate escalating flood risks into property prices is a key question facing at-risk communities.
Zoom in: The study, published Thursday in Nature Climate Change, finds that nationally, property prices are currently overvalued by between $121 billion and $237 billion, when compared to their actual flood risk.
The current prices mask the true danger that these properties are exposed to, because of factors such as outdated FEMA flood maps, incentives in the National Flood Insurance Program and home buyers who lack climate change information.
The paper is the result of a collaboration between experts at the Environmental Defense Fund, First Street Foundation, Resources for the Future, the Federal Reserve and two universities.
Scientists relied on First Street’s updated modeling that simulates rainfall-induced, or pluvial flooding, as well as coastal flood events.
Between the lines: The authors found that right now, 14.6 million properties face at least a 1% annual probability of flooding, putting them in the so-called 100-year flood zone.
However, this is expected to increase by 11% in a mid-range emissions scenario, with average annual losses spiking by at least 26% by 2050.
In dollar terms, the areas with the greatest property overvaluations are along the coasts, where there is overlap between rising seas, fewer flood disclosure laws, and a high number of residents who may not view climate change as a near-term threat.
Much of the overvaluation comes from vulnerable properties located outside of FEMA’s 100-year flood zone.
Once the higher flood risks become evident, homeowners will lose equity in their property, which is a particular threat to lower-income homeowners.
The big picture: The pattern of the total overvaluation of at-risk properties in the Lower 48 states reveals hot spots of risk.
Specifically, coastal areas show high amounts of overvaluation.
Spikes also show up in West Virginia and other parts of Appalachia.
In Texas, it is clear that the biggest cities, including Houston and Dallas, have a significant amount of overvaluation.
Florida tops the list, accounting for about $50.2 billion based on the actual threat, the study found.
What they’re saying: “There is a significant amount of ‘unknown’ flood risk across the country based solely on the differences in the publicly available federal flood maps and the reality of actual flood risk,” Jeremy Porter, head of climate implications at First Street Foundation, said in a statement.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
