Climate change is expected to increase the frequency and severity of floods in the United States, creating greater risks for homeowners and mortgage lenders. Flood damage also tends to reduce the market value of affected homes, making homeowners more likely to default on their loans, especially if the damage is not covered by insurance.
Those are some of the claims made in a new working paper from the Congressional Budget Office.
The paper, “The Impact of Flood Damage on Subsidy Costs for Federally Backed Mortgages,” published this week, uses data on expected flood damage to mortgages and residential properties to examine the extent to which flood damage is expected to increase subsidy costs.
We use estimates of federally insured mortgages to determine the budget impact for mortgages that the federal government insured directly and those that it insured through Fannie Mae and Freddie Mac.
While the paper focuses on the impacts on these groups, it also illustrates the scale of the impacts of climate change and flooding on real estate. Flood risk is a growing concern for governments, so much so that the US Federal Emergency Management Agency recently finalized a rule that, for the first time, requires projects built with agency funds to take into account future flood risk, which is exacerbated by climate change.
CBO estimates that flood damage subsidy costs will be $275 million in fiscal year 2024. The working paper authors now estimate that costs will increase to $395 million under climate conditions projected for 2053 based on medium-term climate change scenarios.
Insurance fee
According to a New York Times article, climate change is making extreme weather more likely, but home insurance costs aren't keeping up with the risks.
The article found that homeowners with similar levels of exposure to perils like wildfires and storms pay significantly different premiums depending on where they live.
For example, the article compares McCartin County, Oklahoma, where the average homeowner paid $2,837 in insurance in 2023, to Little River County, Arkansas (same region and climate), where the average homeowner paid $1,673 in insurance last year.
“Families exposed to the same level of risk are willing to pay very different amounts to protect themselves from harm,” Benjamin Keyes of the Wharton School at the University of Pennsylvania, who has studied the disparities with Philip Mulder of the University of Wisconsin, told The New York Times. “Different prices for the same risk just doesn't seem fair.”
The article points out that as climate change worsens, more homes will be at risk, and without proper home insurance, most people will have no way to afford the costs of rebuilding. The cost of home insurance is as much an economic and social justice issue as it is a climate issue, according to the article.
Record heat
The record-breaking heatwave lasted for more than a year and continued into June.
European meteorological agency Copernicus said June marked the 13th consecutive month of global temperatures being the warmest on record and the 12th consecutive month that has been 2.7 degrees Celsius warmer than pre-industrial times.
Scientists have warned that the world is gradually approaching the 1.5 degree Celsius limit of warming agreed to by countries around the world in the 2015 Paris Climate Agreement.
“This is a stark warning that we are approaching this very important limit set out in the Paris Agreement,” Nicolas Julien, a senior climate scientist at Copernicus, told The Associated Press in an article in the Insurance Journal this week. “Global temperatures are continuing to rise, and the pace is rapid.”
According to Copernicus, the global average temperature in June was 62 degrees Fahrenheit, 1.2 degrees warmer than the 30-year average for the month. According to an Associated Press article, the month broke last year's record for the hottest June and became the third-hottest month on record.
Beryl Mockery
Texas' “highly aggressive climate change policies have worked and will continue to do real harm,” Bloomberg op-ed columnist Mark Gongloff wrote.
“Hurricane Beryl makes a mockery of Texas climate change deniers,” read the headline, noting that no other state has suffered more climate-related damage in recent decades than weather- and wildfire-prone states like Florida, California and Louisiana.
Gongloff also cited data from S&P Global that showed home insurance rates in Texas have risen more than any other state.
Hurricane Beryl won't do much to ease price pressures in Texas: Days after the storm struck the state, hard-hit Houston is still reeling from its aftereffects, with large swaths of the city still without power, closed stores and clogged roads.
Catastrophe modeling firm Karen Clark & Co. said Thursday that U.S. insurers could lose about $2.7 billion from the hurricane, while AccuWeather said this week it expects total damage and economic losses from the hurricane to be between $28 billion and $32 billion.
While other government leaders have sought solutions to extreme weather caused by climate change, “Texas leaders have spent most of their energy not only denying the reality of climate change but also fighting efforts to address it,” Gongloff wrote, including passing laws to block state money from going to investment funds that claim to “boycott” fossil fuels.
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