Global Climate Change Could Impact Florida Real Estate Market | Gayle Kurtzer-Meyers
Changes in global climate impacting Florida real estate.Photo byPhoto by Pixabay
Weather effects on the Florida property market
In recent times, the world has experienced climate change. It has affected the real estate market in so many ways. From rising prices to a decline in popularity in some regions, the impact of weather and climate change has been significant in the last couple of years. There is no mistake about the effect of climate change on communities worldwide. There are plenty of examples, from the heavy rainfall resulting in widespread flooding and landslides in the Netherlands, Florida, Australia, and vast tracks from the US to the ferocious wildfires and droughts in Greece, Australia, and California. Also, areas like Europe record the hottest temperature of 48.8 degrees Celsius. Unfortunately, the truth is that climate risks are mostly underestimated and mispriced, especially by participants in real estate markets.
These extreme weather conditions have significantly affected how the value of real estate evolves. In addition, real estate investors have considered the aftermath of climate change and are looking at the monetary and long-term investment implications. Hence, understanding climate data is helping the real estate market obtain insights into the physical world.
This article aims to study the Florida property market and the effect of extreme weather conditions on its real estate valuation.
“It’s practically a given in Florida that storm-ravaged towns will rebuild in the same risky spots. We’ll build better they all say. Oh yeah? -Alex Harris, Climate Change Reporter
Climate change risks
Climate changes will trigger increased frequencies of extreme weather events that could pose significant risks to real estate in the coming years. For instance, longer summer heat waves will stretch the air conditioner’s capacity and increase home utility costs. Another climate risk is drought, which could restrict building water usage and improve the prevalence of wildfires.
Sales volume and price index for homes exposed to rising sea level risk.Photo byNational Bureau of Economic Research/ Graph Data from CoreLogic and Zillow
More effects of climate change on real estate valuation are:
- Many areas’ weather conditions and climate changes have created residential vulnerability and job losses. Also, the long-term economic situation is forcing residents with lower incomes into older neighborhoods in flood-prone areas, which only has disaster waiting to happen.
- Affordable housing is becoming challenging for many states, especially Florida, which is experiencing some population migration, consequently driving rents higher.
For instance, the overall real estate market in Sarasota-Manatee will likely see a boost from residents needing to repair their properties. Also, given the widespread damage in Florida, construction workers will be in high demand, bringing in more people and lengthening the time for repairing properties.
- Following the latest hurricane that affected a lot of homes in Florida, the seller of any property would need to restore the property to an excellent state. Regardless of how slow the real market might be, sales are growing strong, and long term, it will not be negatively impacted. The rapid inflation of homeowners and flood insurance over the coming months and years could have a longer-lasting impact on Florida’s west coast than the feat of the storm. It means that there would be decreased supply and increased demand.
The effect of climate change in Florida involves sea levels notably higher than the global average due to typical wind and current ocean patterns. The average elevation in Florida is six feet, which, combined with rising sea levels, has resulted in a growing number of properties exposed to the risks of frequent flood damage.
Many residents are concerned that global variables will inundate Florida by the end of the century. It has caused the state to lose many lives and properties. Yet, despite the destruction, the residential market remains strong as potential buyers hope for a price drop. Investors and homebuyers are hunting for deals on damaged homes and commercial properties after the storm.
The Sunshine State market
Real estate investors are banking on skyrocketing home prices and capitalizing on Florida residents looking to leave the state.
For instance, one realtor is working with an investor who plans to spend as much as $50 million picking up properties damaged by the hurricane. And on the other end of the spectrum, an investor who owns a mobile home park said the prices were through the roof, so owners are willing to take any price to sell off their properties. So if you were asking $1 million before the storm, for instance, after the storm, the offers are more in line with the $750,000 mark.
This cycle continues among many potential home buyers and investors on distressed properties in Florida because of the full extent of damage caused by the storm. According to the data from CoreLogic, the total cost of the flood and wind damage to Florida residential and commercial properties expect to fall between $40-$64 billion.
Even though many Americans are uncertain about moving to a market prone to hurricanes, about 62% of residents who plan to buy or sell a home in the next year are hesitant to relocate to an area that faces climate risk. However, Hurricane Ian hit Florida, making many residents take more risks and look past climate change. As a result, many believe that the Florida real estate market will remain attractive to buyers.
In Florida, one of the perks of living in the Sunshine State is the affordable lifestyle and the beautiful scenery; however, since the hurricane, the proper supply of affordable housing has grown more arduous, and buyer demand is still ongoing, regardless of the storm.
Level of evaluation by county by 2050.Photo byMcKinsey Global Institute
Despite the homes decimated by Hurricane Ian a few months ago, the real estate market in Florida is proving to be lucrative. Multiple studies showed property values in storm-ravaged regions have historically risen past the national average following a disaster.
The prices of houses in the real estate market in Southwest Florida have been high following the catastrophic hurricane. The prices will stay up for a while because of the tremendous demand and low supply. Still, it will continue the overall progression of where people want to live. Data from Florida Atlantic University shows that buyers are paying, on average, 70% more than they should be. The truth is, it is not the hurricane making people move here but the aftermath, which is why so many people will be willing to move here.
Golden hours still appeal to buyers despite Florida’s negative impact of global weather conditions.Photo byJames Cheney
Some housing analysts believe that, at least in the short term, “price increases will certainly occur almost immediately, driven primarily by continued strong demand and storm-induced inventory shortage.” While prices can be erratic for the initial months, the demand for living along a coastline with warm water with a business-friendly economy has led to expedited economic recoveries after the recent hurricane strikes. According to the Naples Area Board of Realtors, the median sales price for a single-family home increased by 24.9% between August 2021 and August 2022, the latest month for which statistics are available.
For many real estate investors, it is essential to consider climate change risk when making decisions about the property, especially from a financial point of view. Also, there is a need to align closely, collaborate, and develop a standardized approach concerning the investment process. The need to consider long-term and short-term financial implications, such as increased insurance premiums, higher operational costs, and an outlook of the neighborhood in 25 years, will contribute to a regulated, widely adopted approach to climate risk. Such effort will ensure assets are valued accurately and consistently.
I have found this due diligence essential in my investor and property manager role.
Due to the devastation, it will be a while before many homes can go on the market. Still, many homeowners are going back to Florida to take a shot at repairing their homes and selling them off to buyers willing to do anything to live in a place that fits their lifestyle. Also, because of the current limited supply and the demand for homes by investors and end-users, home prices are expected to increase for the next 12 to 18 months.
“You can’t just build in high-risk areas indefinitely, and expect it to be insurable at an affordable rate.” -Z Taylor, Professor at Delft University of Technology-
This article is for informational purposes only. It should not be considered Financial, Real Estate, or Legal Advice. The market fluctuates; therefore, not all information will remain the same. Consult a financial or real estate attorney before making significant real estate decisions.