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News Junction > Blog > Business > Disaster-prone areas are becoming a haven for those seeking cheaper homes – Redfin
Disaster-prone areas are becoming a haven for those seeking cheaper homes – Redfin
Business

Disaster-prone areas are becoming a haven for those seeking cheaper homes – Redfin

Published July 30, 2023
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piyaset/iStock via Getty Images

Yes, It’s come to that.

With U.S. home prices near historic highs and mortgage rates elevated after a year of Federal Reserve rate hikes, people are increasingly moving to places with high climate risks, according to a recent study by real estate brokerage site Redfin (RDFN).

The country’s most flood-prone counties saw some 384K more people move in than out in 2021 and 2022, representing a 103% jump from the prior two-year period. Similarly, the counties with the highest wildfire risk experienced a net influx of 446K people over the past two years, up 51% from 2019 and 2020. And the counties with the highest heat risk saw 629K more people move in than out, a 17% climb.

In the past two years, Redfin (RDFN) noted, almost 60K people moved into than out of Lee County, Florida, which was hit by Hurricane Ian last September, marking an increase of about 65% from the prior two years.

Redfin’s (RDFN) analysis relied on migration data from the U.S. Census Bureau and climate-risk scores from First Street Foundation. It parsed the counties in the contiguous U.S. that rank in the top 10% for flood and fire risk and the top 33% for heat risk, as measured by the share of residential properties at high risk.

At the depths of the Covid-19 pandemic, a combination of remote work and record-low mortgage rates prompted many Americans to leave expensive coastal cities (e.g., New York and San Francisco) for the Sun Belt in search of cheaper homes, warm weather and/or lower taxes. In the wake of that transition, Florida, Texas and Arizona were among the states exploding in popularity despite high heat, fire and flood risks.

“It’s human nature to focus on current benefits, like waterfront views or a low cost of living, over costs that could rack up in the long run, like property damage or a decrease in property value,” said Redfin Chief Economist Daryl Fairweather. “It’s also human nature to discount risks that are tough to measure, like climate change.”

There are some exceptions to this macro trend, though. People have left flood-prone Louisiana, the study pointed out, as soaring insurance costs across the state are “decreasing the amount of money people have to put toward buying a home, diminishing their purchasing power,” said local Redfin Premier real estate agent Jes Menes.

Last month, the Wall Street Journal reported that American International Group (AIG) and Allstate (ALL) had started to steer clear of home-insurance sales in certain parts of the U.S. that have become vulnerable to climate change. State Farm and Allstate, two of the biggest insurers in California, were said to curb homeowners’ policies in the state, citing soaring rebuilding costs induced by the post-pandemic inflation spike and supply-chain issues.

Other P&C insurance stocks: Aflac (AFL), Travelers (TRV), Chubb (CB), and Marsh & McLennan (MMC).

What are the implications of risky areas for homebuilders? It’s not exactly a win-win.

“As natural disasters become more common, home prices in disaster-prone areas could increase as builders pass rising construction costs onto buyers,” Jacob Channel, chief economist at online lending marketplace LendingTree (TREE), told Seeking Alpha.

“That said, if there is enough demand, then builders will likely continue to forge ahead in constructing homes in disaster-prone areas, even if that construction is more difficult,” he said.

Publicly-traded homebuilders: D.R. Horton (DHI), KB Home (KBH), PulteGroup (PHM), Toll Brothers (TOL), Lennar (LEN), Beazer Homes USA (BZH), Tri Pointe Homes (TPH), Hovnanian Enterprises (HOV), NVR (NVR), Taylor Morrison (TMHC), and Meritage Homes (MTH).

The housing landscape in 2023 also doesn’t look good in terms of affordability. Home prices remain stubbornly high, amid low inventory, and mortgage rates are at their highest in two decades as the Federal Reserve’s rate hikes continue to weigh on rate-sensitive sectors of the economy.

The S&P Corelogic Case-Shiller Home Price Index, although a lagging indicator, showed that home prices increased on a month-over-month basis across all 20 major metropolitan markets for the third straight month. May’s FHFA House Price Index also signaled an increase, albeit modest, in home prices.

If national home prices and mortgage rates come down to more affordable levels, it should not be assumed that the migration into risky areas will reverse, at least in the near future, Channel contended.

“Even if they do end up less expensive than they are now, homes in places like California, Hawaii, and New York are going to remain relatively expensive, especially compared to homes in more rural parts of the country like Louisiana. Owing to this, I don’t think that people are going to stop moving to cheaper parts of the country any time soon, even if some of those cheaper areas are more disaster prone,” he added.

More on the housing market and the broader economy:

#Disasterprone #areas #haven #seeking #cheaper #homes #Redfin

TAGGED:areascheaperDisasterpronehavenHomesRedfinseeking
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