Other climate risks, such as fires, droughts, extreme heat and storms, do not affect homebuyer behavior
- Mortgage application rejections and withdrawal rates are higher in areas with higher flood risk.
Home values in high flood risk areas continue to grow faster than other areas. Risks associated with other climate events – fires, droughts, heat and storms – have little impact on mortgages.
, /PR Newswire/ — A New Zillow® Analysis with ClimateCheck®, found that in areas with increased climate risk, flood risk led to an increase in mortgage rejections and withdrawals of mortgage applications by potential borrowers, even after controlling for income and property values. Risks related to the impacts of climate change have been at the heart of conversations around the future of housing in recent years, and this new evidence suggests that while climate risks may not dampen demand for housing, they may be at the heart of buyer and lender decisions.
Denial and withdrawal rates were higher in areas at high risk of flooding than in 2017, and higher than in other areas at risk of climate events. But homes in areas with higher flood risk continue to appreciate faster than others, suggesting there are still plenty of buyers willing to accept the risk — and pay high home costs and necessary Insurance — used to trade off living in a desirable waterside location.
“Higher mortgage application rejection and withdrawal rates in high flood risk areas are an encouraging sign that buyers and lenders are more often incorporating flood risk into their decision-making,” said Zillow Senior Economist Nicole Bashaw . “Living on desirable coasts and other bodies of water (which tends to be more prone to flooding) will continue to attract homebuyers, but more and more are considering additional risks. We haven’t seen other types of climate risks affecting homebuying behavior,” he said. So there is a lot of room for change and continuing education.”
Evidence recommends that homebuyers prefer to purchase investment homes in these high flood risk areas rather than primary residences. As the proportion of buildings at risk of flooding in a given census tract increased, so did the proportion of mortgage applications for investment properties. This may indicate that homeowners are less willing to invest their primary residence in high-risk areas than those buying part-time or investment homes. Or it could indicate that households with multiple properties — potentially those with higher incomes — are more able to afford a home in these rapidly appreciating areas.
In areas with higher flood risk, down payments also tend to be smaller. The greater the flood risk in a given census tract, the higher the median loan-to-value ratio for mortgage applications. Although the difference is small, it shows that prospective home buyers are less willing to put their money online.
While the data on loans in high flood risk areas is Risks associated with other climate events — fires, droughts, heat and storms — have had little impact on mortgages so far. In census tracts with a higher risk of these climate events, there was no significant difference in the proportion of mortgages that were rejected or withdrawn compared with places with lower risk.
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about Climate Check
Climate Check provides instant access to property risks driven by climate change. ClimateCheck’s team of scientists and consultants combines historical data and climate models to create a hyperlocal risk assessment of all hazards for every property in the United States. www.climatecheck.com.