Home values now rising faster in areas with lower climate risks 

The increasing frequency and intensity of natural disasters is starting to have an impact on home prices, according to a new report from Redfin.

The numbers: While home values are up across the board, home prices in areas with a low risk of extreme heat, flooding or fire appear to be rising faster than those of homes in areas with higher risks. It's the first time that's happened since 2010.

Home values in areas at low risk for extreme heat are up 7% year-over-year, compared to a 6.3% rise for homes in heat-prone areas. Homes with a low risk of flooding are up 6.7% (vs. 6% for those in high-risk areas), while homes at low risk for wildfires saw values increase 6.6% (vs. 6.4%).

The impact on homebuying decisions: "The fact that this is happening across risk types — and thus, across the country — is some of the best evidence we have that climate change is impacting people's homebuying decisions," said Redfin Senior Economist Elijah de la Campa in a news release about the data. 

"With climate catastrophes becoming increasingly frequent and calamitous, many people have decided they don't want to live in risky areas. And with insurance costs skyrocketing, many risky areas that were once affordable have become prohibitively expensive."

The data aligns with a 2023 Zillow study on climate risk, which found that more than 80% of the nearly 12,000 buyers surveyed said they consider climate risks such as flooding, wildfires, hurricanes and drought when shopping for a home.

Where demand has fallen: Much of the shift in home values has been influenced by market conditions in two big states — Florida and Texas — that experienced considerable growth during the pandemic-era boom but have seen a significant slowdown in the past year. 

Part of that is due to the impact of natural disasters, which previously did not seem to deter migration to those areas despite increased risk. But there are other factors as well: More homes are being built in those states, increasing supply during a period of slowing demand, and a jump in insurance premiums and property taxes in Texas and Florida has also hurt demand.

Concern over the monetary impact of climate change appears to be resonating with some homeowners as they think about their next move. A survey from Lending Tree published earlier this year found that more than half of homeowners fear the effects of climate change, including on their home insurance costs. The survey also found that 57% were willing to pay extra for a home less susceptible to climate change.

Values still up in high-risk areas — but is it a bubble? The one-year shift in home values hasn't yet reversed the longer-term trend, which indicates that, overall, homes in high-risk areas have gained more value than those in low-risk areas. 

In the past five years, for example, home values rose nearly 68% in areas with a high risk of wildfires, but just 57% in low-risk areas.

According to a recent article in The Atlantic, many economists now think that home prices don't yet reflect climate reality, creating a housing bubble in those higher-risk areas.