What Impact Will Climate Change Have On The Housing Market?

The physical destruction created by climate change will create significant and potentially severe changes in the actions of lenders, mortgage investors, federal programs and policies, appraisers, insurance companies, builders and homebuyers, according to the new report “The Impact of Climate Change on Housing and Housing Finance” published by the Mortgage Bankers Association's Research Institute for Housing America.

Sigonella, Sicily, Landscape, Houses

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Identifying The Risks: 

The report follows the recommendations of the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures in dividing climate-related risks into physical risks (adverse weather events and natural disasters) and transition risks (policy and legal, technology, market and reputation risks). The report stressed that forecasting the severity of the risks is difficult because there is no course of action for addressing the problem.

“Projecting future climate change and its impacts remains challenging primarily because the outcome depends crucially on the actions chosen by governments, industries, and households,” said Sean Becketti, the report’s author and former chief economist at Freddie Mac (FMCC). “Given the uncertainty over those actions, the future path of climate change could continue to get much worse.”

One of the most significant challenges posed by climate change, the report warned, was to the already-beleaguered National Flood Insurance Program (NFIP).

“Increases this century in insurance claims generated by climate change are likely to stretch the NFIP to the breaking point, facing homebuyers, lenders, GSEs [government-sponsored enterprises] and governments with a host of difficult questions,” the report observed. “In addition, independent estimates of flood risk suggest that the NFIP currently excludes 2/3 of the at-risk properties, suggesting that the current government approach to disaster recovery may become too expensive to sustain in future.”

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