The real estate market is no longer driven solely by traditional factors like location or market trends. Today, climate change is reshaping the way people think about where they live and what kind of property they buy. As extreme weather events become more frequent and unpredictable, home buyers must now factor in the risks associated with natural disasters like floods, wildfires, and hurricanes. These climate risks not only affect the property itself but also come with rising insurance costs, making it harder for some to afford a home in high-risk areas.

Many homeowners are noticing how insurance premiums are going up, especially in states like Florida and California, where storms, wildfires, and coastal flooding are a growing concern. In response, buyers are adjusting their expectations, considering less risky locations, and even abandoning their dreams of living in certain regions altogether. The financial impact is undeniable, but it’s also changing the psychology behind buying a home, making safety and long-term sustainability critical factors in decision-making.

The Hidden Cost of Homeownership: Insurance Premiums
Homeowners in high-risk areas are experiencing more than just physical damage from storms—they are being hit hard by rising insurance premiums. For example, in Florida, homeowners’ insurance premiums have doubled or even tripled in just a few years, with some policies increasing from $1,200 annually to over $4,000. While part of this is due to the increased risk of natural disasters, it is also tied to the shrinking number of insurance carriers willing to operate in these regions. As insurers withdraw, the few that remain have increased rates to cover their losses.

But it’s not just homeowners who are affected. Auto insurance rates are also climbing in storm-prone areas. Insurers, facing rising claims from natural disasters, spread the costs across all types of policies, which means everyone ends up paying more. For homeowners already struggling with mortgage payments, this added cost can be financially devastating. The rising insurance prices are becoming a significant barrier to homeownership, particularly for first-time buyers.

Tools for Evaluating Climate Risks
Homebuyers now have access to new tools that help them evaluate the climate risks associated with specific properties. One example is Zillow’s collaboration with First Street, a company that assesses climate risks for homes. Potential buyers can now view risk scores for risks such as floods, wildfires, and extreme heat.

For instance, a property in a coastal area might have a flood risk score of seven out of ten, indicating a high probability of flooding. Meanwhile, the same home could have a wind risk of ten out of ten, reflecting the danger of hurricane-force winds. With this information, buyers can make more informed decisions about whether they are willing to take on the associated risks and costs.

However, this new level of transparency can also discourage potential buyers, particularly if they are unfamiliar with the risks. A high flood or wind risk score might lead a buyer to assume that insurance costs will be prohibitive, even if there are ways to mitigate those costs. Real estate agents and sellers will need to be prepared to answer tough questions about how climate risks affect the long-term affordability of owning a home in certain areas.

Managing Rising Insurance Costs
Although the rise in insurance premiums seems inevitable, there are ways to manage these costs. One key strategy is ensuring that homeowners are categorized correctly by their insurance provider. For example, homes are often put into broad categories based on age, regardless of whether the property has undergone recent upgrades like a new roof or updated plumbing. By providing documentation of these improvements, homeowners can potentially lower their premiums by being placed in a less risky category.

Another solution, particularly for flood insurance, is transferring existing policies from the seller to the buyer. In Florida, if a homeowner has flood insurance with a lower premium, they can transfer that policy to the buyer, saving them from having to purchase a more expensive policy. This is especially valuable in areas where flood zones have changed over time, allowing homeowners who bought insurance before the change to keep their lower rates.

By taking these steps, both buyers and sellers can solve the complexities of rising insurance costs more effectively, making homeownership more accessible. However, broader legislative solutions are still needed to ensure that insurance remains affordable for everyone.

Bottom Line
As climate risks become a more prominent factor in real estate decisions, the financial landscape of homeownership is changing. Rising insurance premiums, driven by the increasing frequency and severity of natural disasters, are making it more expensive to own property in high-risk areas. Buyers need to be aware of the long-term costs associated with these risks, while sellers and real estate agents must be prepared to address concerns about insurance and climate-related hazards. By leveraging available tools and strategies to manage these costs, homeowners can still find ways to protect their investments and make informed decisions in an evolving market.