Climate-Driven Insurance Hikes Lower US Home Values

Benjamin Keys and Philip Mulder published a study through the National Bureau of Economic Research showing that escalating home insurance premiums are eroding real estate values across the United States. The researchers identified a reinsurance shock, in which global reinsurance firms nearly doubled the rates charged to home insurance providers to account for increased disaster risks.

This financial pressure has caused homes in the most exposed ZIP codes to sell for an average of $43,900 less than they otherwise would. The effects are most acute in coastal Louisiana and Florida, as well as wildfire-prone regions of California and Colorado. In some locations, such as Orleans Parish, Louisiana, insurance costs now comprise nearly 30% of total monthly housing payments.

Because lenders require insurance to maintain mortgages, homeowners are increasingly forced to choose between unaffordable premiums or the risk of foreclosure. In response to these trends, Colorado insurance commissioner Michael Conway is exploring regulatory fixes to prevent the insurance market from decimating the real estate market.