Is Climate Change About to Shake Up Mortgages and Insurance?
What if buying a home in a wildfire zone hurt your credit? Or if living near the coast made your mortgage rates skyrocket? It’s not just a wild idea anymore.
A new report from First Street, a climate risk financial modeling firm, says it’s time for lenders to rethink how they evaluate creditworthiness. Right now, they’re missing a big piece of the puzzle.
One word: climate.
Why does climate change matter when it comes to mortgages?
Think about it. Wildfires, floods, hurricanes. They’re getting more intense and causing more damage. It’s not just a personal problem when your basement floods. Lenders feel it too.
Here’s the kicker. If climate risks start factoring into your credit score, owning in a high-risk area might ding you. Lower credit score. Higher interest rates. And maybe fewer loan options altogether.
It’s a wake-up call.
How bad could it get for lenders?
Pretty bad. Try billions of dollars bad.
First Street’s report says weather-driven foreclosures already cost lenders $1.2 billion annually. By 2035? Those losses could jump to $5.4 billion a year. Just three states eat up most of these losses today. Any guesses? Yep. California, Florida, and Louisiana.
But it’s not just about loans.
What’s happening in the homeowners’ insurance world?
Oh, it’s messy. Premiums are through the roof. Insurers are leaving disaster-prone areas altogether. Florida’s a prime example. California too.
When insurers leave? That’s trouble for homeowners. Because without insurance, you’re exposed when the next storm hits. Not to mention, it makes lenders nervous. No insurance means higher financial risks for everyone involved.
And flood insurance? Don’t even get started.
Why is flooding such a big deal?
Flooded homes are 57% more likely to end up in foreclosure. That’s compared to dry homes nearby. And here’s the twist. A lot of the worst flooding isn’t even in official FEMA flood zones. That means many homeowners don’t bother with flood insurance. When disaster strikes, they’re on their own.
Not good.
Insurance premiums in risky areas? They’re climbing fast. Families are feeling the squeeze. Lenders too.
What’s the ripple effect on the housing market?
It doesn’t stop at your front door. Climate events shake up the whole system. Mortgage rates climb. Foreclosures rise. Fewer people can afford homes. It’s a domino effect.
Jeremy Porter, one of the First Street report’s authors, puts it bluntly. “Climate events destabilize housing markets. The impact spreads far beyond those directly hit.”
What about government data to back this up?
Here’s the problem. Federal agencies like NOAA used to track billion-dollar disasters consistently. But now? Budget cuts mean no updates. This leaves researchers like First Street scrambling for other data. Not ideal.
What does this mean for homebuyers?
The rules might change. If climate risks enter the equation, buying a home could come with new challenges. Higher rates. Tighter restrictions. Or loans are denied completely in high-risk zones.
Harsh? Maybe.
But reality doesn’t wait. Climate disasters are here. And the housing and insurance markets are reeling.
The question is, are lenders, insurers, and homeowners ready to adapt? Or is this just the calm before an even bigger financial storm?