It’s still too soon to fully calculate the cost of the Los Angeles wildfires, but one thing is clear: The cost of insurance will go up, and that will affect not just the value of LA real estate but of real estate across the nation.
The losses from those wildfires may seem unimaginable now, but they were actually already part of a calculation that climate risk experts have been modeling recently as they attempt to measure the effects of climate change on home values.
By 2055, 84% of all U.S. homes may see some drop in value, totaling $1.47 trillion in losses, according to an analysis by First Street, a climate-risk firm.
“Climate change is no longer a theoretical concern – it is a measurable force reshaping real estate markets and regional economies across the United States,” said Jeremy Porter, head of climate implications research at First Street.
According to the report, insurance is expected to grow by a national average of 25% over the next 30 years, with 14% of that due to current underpricing of risk and the additional 11% due to increasing climate risk over that time period. The property value impact on average is only about -3% nationally, but there are some areas that are expected to lose a significant amount of their value. Roughly a dozen counties in Texas, Florida and Louisiana could see home values cut in half, according to the report.
Dave Burt, founder of DeltaTerra Capital, is also calculating climate risk to real estate.
DeltaTerra is an investment research and consulting firm that provides institutional investors and others with tools to measure and manage financial risks related to climate change, according to its website.
In the next five years, at least 20% of U.S. homes will be devalued in some way by the effects of climate change, Burt said.
“In the past, insurers have not increased prices because of these increasing weather events,” he said. “That’s all falling apart now because of the fragility of the system and some of the insurance market failures that we’ve seen in just the last few years.”
Burt was one of the few to predict the risks in the subprime mortgage market nearly two decades ago, and he made a lot of money betting against those loans. Burt says he sees a similar pattern emerging with climate change. As growing climate risk forces the insurance industry to reprice higher, home values will drop because when the cost of owning a home rises, its value falls, he said. The correction, he said, will be severe.
“We think that those 20% of markets could be down 30% over the next five years in value, which is very similar to the 2007 to 2012 great recession experience,” Burt said.
And he’s not alone. Sen. Sheldon Whitehouse, D-RI, warned of the risk at Treasury Secretary Scott Bessent’s confirmation hearing.
“The most immediate danger of a major economic collapse is going to come through the insurance industry,” Whitehouse said in January. “We’re seeing it already. The fires in LA are making it worse out in California,…
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