Housing market overvalued by $121 billion to $237 billion due to unrealized flood risk.

US homes in areas prone to floods may be currently overvalued in the range of $121 billion to $237 billion, according to a report published in the journal Nature Climate Change. Roughly, that number is derived by looking at how much homes are selling for now and subtracting the estimated average annual losses that they will incur from flooding over the next 30 years (the average length of a mortgage in the US), as determined by the First Street Foundation, a non-profit that seeks to improve awareness of climate change-related risks like increased flooding. The report was authored by researchers from First Street, the Environmental Defense Fund and Resources for the Future, among others. The discrepancy in value was particularly significant in counties along the coasts in places where disclosure of flood risk isn’t required in real estate transactions, the study found. Although high-value homes along Florida’s Gold Coast accounted for the largest part of the absolute amount of valuation differential, low-income households stand at risk of losing the largest share of home value. “The consequence of this financial risk and how the housing market responds really depend on policy choice on who bears the cost of climate change,” said Jesse Gourevitch, a fellow with the Environmental Defense Fund and the lead author of the report. “It is really critical that flood risk is better communicated to property owners.” It has long been understood that flood risk is not adequately priced into homes or flood insurance. In many cases, buyers are simply not aware, since federal government maps outlining risk zones are outdated and difficult to access. Moreover, state laws vary on how much flood-disclosure risk is required when homes are sold.

Source: Mortgage Professional America