Trillion-dollar impact? How natural disaster risk could reshape the US real estate market

First Street’s comprehensive analysis, published in its 12th national report, “Property Prices at Risk,” provides insight into the observed and projected impacts of climate change on the U.S. real estate market. Using peer-reviewed methodologies and macroeconomic models, “Property Prices at Risk” estimates a potential $1.47 trillion decline in unadjusted real estate values ​​over the next 30 years due to climate-related risks.

Drawing on research examining climate risk awareness, housing market dynamics, climate-related migration patterns, and demographic and socio-economic changes, “Property Prices in Peril” offers a forward-looking analysis of the House Price Index (HPI), property valuation trends, and local Gross Domestic Product (GDP) impacts through 2055.

According to the study, residential real estate is the cornerstone of the U.S. economy, currently valued at $50 trillion and nearly double the nation’s $27.4 trillion GDP. With nearly two-thirds of U.S. adults homeowners, homeownership is often the ultimate sign of success for many Americans. Historically, population migration and homeownership trends have shown that areas that have combined the cost of homeownership and quality of life have grown much faster than areas that have less to offer in these locations.

These regions have seen increases in exposure to severe weather and insurance costs, causing the overall cost of homeownership to steadily rise. While the Sun Belt region is the most dramatic example of this phenomenon, insurance markets responding to growing awareness of climate risk are fundamentally changing the calculus behind homeownership and the desirability of entire communities across the country.

Key findings

Climate risks are reshaping the fundamentals of real estate: Climate change is transforming the U.S. housing market through two powerful indirect forces—insurance costs and changing consumer preferences—that together create a feedback loop in which climate risks drive population movements and reshape property values ​​across the country, fundamentally altering traditional patterns of real estate growth and community development.

Acceleration of insurance costs in relation to home appreciation: Insurance costs are rising faster than mortgage payments. From 2013-2022, insurance as a percentage of mortgage payments more than doubled, rising from 7%-8% to more than 20% of mortgage costs.

Expected disruptions in the growth of the Sun Belt: A historic population migration to the Sun Belt, which has dominated U.S. population movement for decades, is being fundamentally disrupted by the effects of climate change. The three largest Sun Belt states (Texas, Florida, and California) have borne more than 40% of the nation’s $2.8 trillion in natural disaster costs since 1980.

Climate-driven macroeconomic assessments: First Street's Macroeconomic Implications Model (FS-MIM) provides a comprehensive and novel analytical framework that combines the acute effects of rising insurance premiums with the chronic effects of changing consumer demand and migration patterns to quantify how climate risks will reshape property values ​​and economic vitality in American communities over the next three decades.

Risk-based insurance premium forecasts: First Street estimates that unlimited risk-based insurance pricing would result in a 29.4% increase in average premiums by 2055 – including an 18.4% adjustment to current pricing and an 11% increase from growing climate risks.

Premium increases concentrated in the coastal metro area: The five largest metro areas facing the highest insurance premium increases are Miami (322%), Jacksonville (226%), Tampa (213%), New Orleans (196%) and Sacramento (137%).

Climate migration prevents population redistribution: First Street’s climate migration projections predict that more than 55 million Americans will voluntarily move within the US to areas less vulnerable to climate risks by 2055, up from 5.2 million in 2025.

Different growth trajectories between neighborhoods: The report identifies five distinct neighborhood trajectories in climate migration and insurance premiums: climate abandonment (26% of all censuses), risky growth (31%), tipping point (27%), economic decline (11%), and climate resilience (5%).

Economic Vitality in the Face of Climate Risks: The report suggests that economic power alone may not be enough to sustain population in areas facing severe climate impacts, as evidenced by expected “tipping points” in some of today’s growing metropolises.

Widespread climate-driven depreciation: By 2055, 70,026 neighborhoods (84% of all census tracts) could experience some form of negative property value impacts from climate risk, totaling $1.47 trillion in net property value losses due to insurance pressures and changes in consumer demand.

Impact on property values

“Climate change is no longer a theoretical matter; “It is a measurable force that is reshaping real estate markets and regional economies across the United States,” said Dr. Jeremy Porter, head of climate impact research at First Street. “Our findings highlight the urgent need to understand how insurance increases and population movements are changing the country’s economic geography.”

“Property Prices at Risk” highlights differences in property values: High-risk areas are expected to experience significant depreciation, while areas perceived as climate resilient are expected to benefit from increased demand. This reallocation of economic activity will have profound implications for local government revenues, with at-risk areas facing a reduction in property tax revenues, while more resilient areas will benefit.

“These results highlight not only the pressing challenges, but also the opportunities for adaptation and innovation in the face of climate change,” said Matthew Ivey, founder and CEO of First Street. “Policymakers, businesses and communities must act now to reduce risks and seize the economic opportunities emerging in a changing landscape.