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Climate risk should be considered in housing decisions

Flooding, fire, drought, and other weather-related risks have always been a danger to property and consumer wellbeing. However, with the changing climate, these risks are increasing in intensity and frequency, impacting the probability of damage, cost of utilities, price of insurance, and potential resale value of homes.

A 2021 report by the First Street Foundation found that nearly 4.3 million residential homes across the country had substantial flood risk. For these properties, annual losses per property were estimated at $4,694, growing to $7,563 by 2051. Homeowners in high-risk coastal areas are already facing increases in flood insurance premiums, sometimes by thousands of dollars a year . However, changing weather patterns impact homes all across the country including cities like Chicago, where record highs and lows of Lake Michigan are placing property at risk . In other states, fire risk is a major factor, with an estimated 4.5 million U.S. homes at high or extreme risk, according to Verisk Analytics. These risks impact both renters and homeowners.

Every property faces climate risks, however formerly redlined areas are disproportionately affected by heat and flood risk . For these homeowners, understanding climate risks is even more essential in order to take steps towards mitigation and plan for the future. Individual climate risks will vary based on location thus it is important to focus on the relevant risks for your area.

For homebuyers:

You have many factors to consider when deciding on a home: price, location, commute time, and schools, among others. It is time to add climate risk to that list.

Some major real estate websites have already started including flood risk and other climate risks in their listings. However, past flood damage can be hidden, costly to repair, and a sign of future risk. Before making an offer, look up a property’s climate risks using the resources below and check if your state has disclosure requirements for past flooding.

If a property is located in a FEMA high risk flood zone and you have a mortgage, you will likely be required to purchase flood insurance from the National Flood Insurance Program (NFIP) at additional cost, but it’s important to note that properties not in flood zones can still be at risk of flooding or other climate risks. On average, 40% of the National Flood Insurance Program (NFIP) flood insurance claims occur outside the high-risk flood areas. And in 2017, during Hurricane Harvey, thousands of properties not in flood zones ended up flooded , many of which did not have insurance to help with repairs. You can see an estimate of future flood risk using tools such as Flood Factor or Climate Check .

Other climate risks including fire risk can also drive up costs. Federal agencies including USDA, NOAA, and FEMA have also developed tools to measure overall climate risk , sea level rise , and wildfire risk .

For homeowners:

As a homeowner, it is important for you to know your climate risk so you can be better prepared for future costs and climate events. Often climate risks are undisclosed and only reveal themselves over time. Start by assessing the overall climate risk to your property, focusing on the most severe risks.

Investigate your climate risk with some of these tools: the FEMA National Risk Index , NOAA Sea Level Rise Viewer , USDA Wildfire Risk to Communities , Flood Factor Flood Tool , or Climate Check .

Next, evaluate how these risks may impact future insurance and utility costs as well as resale value. Examine your current budget and how it would be impacted by rising utilities and insurance costs. If your home is in an area that will get hotter or has high climate risks, these costs are likely to rise more than average. Additionally, if your property is severely impacted by climate risks, that can make it expensive or impossible to insure in the future, causing potential buyers to be wary.

Lastly, investigate options to mitigate and adapt to your climate risk. FEMA has advice on how to protect your home from flooding and wildfire . These can help but are no guarantee, thus additional insurance may be needed. To save on utility costs, consider energy efficiency or other improvements such as solar panels , improved insulation , and energy efficient windows and home appliances .

For renters:

As a renter, you are not responsible for damage to a property due to a climate event, but you can still be vulnerable to physical harm, displacement, and loss of belongings. In addition, rising utility payments will impact renters either directly, if they are responsible for paying utilities, or indirectly, through increased rent.

Most tenants get no information about a unit’s flood risk , and typical renters’ insurance does not cover flood damage. But flood insurance for renters is available. To prepare for climate events, you should be aware of the most relevant climate risks and, if possible, incorporate climate risks into your rental decisions.

Investigate your climate risk with some of these tools: the FEMA National Risk Index , NOAA Sea Level Rise Viewer , USDA Wildfire Risk to Communities , Flood Factor Flood Tool , or Climate Check .

*Although this blog includes links to private websites measuring climate risks, the CFPB cannot attest to the accuracy of these sources and encourages consumers to look at many sources when making a decision on climate risk.

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