HOW THE WEATHER AFFECTS YOUR HOME’S VALUE
Extreme weather is causing unprecedented property damage around the globe. According to the American Property Casualty Insurance Association (APCIA), in the U.S. alone, losses from natural disasters totaled more than $275 billion over the past three years — the highest figure ever. But damage from storms isn’t the only way bad weather affects your home’s value. Rising insurance costs, increased building costs, and more can decrease the value of your home. To understand these costs and how to protect your investment, read on.
Damage Costs
For homeowners, extreme weather is creating major financial risks, with more than half of all homeowners surveyed in the U.S. incurring costs due to extreme weather in the past decade. Not all damage is covered by insurance, leaving homeowners holding the bag for expensive repairs following a natural disaster. And it’s not just the headline-making catastrophes: more everyday problems, like hail and wind damage, are also costing homeowners and insurers billions.
Rising Insurance Costs
Extreme weather makes homeownership far more expensive in another way: insuring your property. “In recent years, the frequency and severity of these events have caused significant losses to insurance companies, leading many of them to pull back from offering coverage in coastal regions altogether,” says Loretta Worters, vice president of media relations at the Insurance Information Institute.
Facing catastrophic losses, insurance companies are increasingly reluctant to offer coverage in communities most vulnerable to extreme weather damage. Some disaster-prone states, like Florida and California, have even seen large insurance companies withdraw from the market due to rising costs, which makes finding and affording home owner’s insurance that much more challenging. More and more, homebuyers and homeowners alike are finding that high insurance rates, high mortgage rates, and high prices are making it unaffordable to buy or maintain a home in coastal areas such as Florida.
Those woes seem likely to hit other areas soon, too, as insurers seek to recoup their losses by increasing premiums across the country.
Falling Property ValueS
Extreme weather and other natural disasters are increasingly factors that buyers are thinking about when searching for a new home. A recent report from Zillow shows that 83% of homebuyers now consider climate risks such as floods, hurricanes, fires and droughts when they are house hunting.
The threat of extreme weather can have a serious impact on a home’s value, which in turn can affect a buyer’s ability to get a mortgage — or an owner’s ability to refinance or tap into their equity. In fact, climate and weather-related risks or damage can make a whole community less attractive to buyers, lowering the property values in the entire area. Case in point: A recent study by the Environmental Defense Fund and others estimated that U.S. homes located in flood zones were overvalued by between $121 billion and $237 billion.
Rising Real Estate Costs
While the risk of a future losses can depress home values, that is not always the case. In popular areas, where a storm destroys housing inventory, median home prices may actually increase. For example, following Hurricane Ian in September 2022, in Fort Meyers, Florida, home prices actually increased 10 percent in the year following the storm.
After an area has suffered damage from an extreme weather event, home prices can actually increase in popular areas. This increase can be due to the destruction of housing inventory and the increased costs of building new homes. Surviving inventory may be priced higher as people scramble to find replacement housing and building costs may soar due to higher demand and prices for labor and materials.
The impact of extreme weather on property values can also affect a buyer’s ability to get mortgage and insurance, making a previously affordable home out of reach for many families.
Protecting Your Investment
There are ways to protect your home, and your investments, from weather-related risks. Here are a few strategies that can help.
Focus on Preparedness: Explore ways to strengthen your property against the biggest risks in your region. In coastal areas, she highlights a program from the Insurance Institute for Business and Home Safety called Fortified, which go beyond building code standards to provide additional protection from severe weather. The organization also has a wildfire preparedness program.
Upgrade the Energy-Efficiency: In areas where extreme heat is a problem, a power outage that takes the air conditioning out can lead to dangerous conditions quickly. Installing solar panels, a generator, or other back-up systems can help keep both you and your home safer.
Reduce insurance Costs: As insurance costs continue to rise, look for ways to reduce your out-of-pocket expenses, such as bundling homeowners insurance with auto and life coverage. Additionally, consider increasing your deductible. While you’ll need to pay more if a disaster occurs, you will be able to save money on a monthly basis.
Budget for Retrofits and Adaptation: You can’t change the weather, but you can change your budgeting strategy to plan for the higher home costs it might bring. It’s going to cost more to retrofit your home in response to climate change. Whether you need a sump pump to deal with flooding, air conditioning to deal with extreme heat, or air filters to filter out wildfire smoke, there are adaptations that will be needed now that homeowners may not have considered before.
