Floods, Wildfires Hinder Appreciation of Real Estate in Several Areas

Home prices are affected by several factors—like whether the property is located in an area where it’s susceptible to natural disasters. Some of the most common threats are wildfires and floods.

Since August 2020, overall home appreciation has experienced double-digit growth, and it’s expected to continue into 2021. But a recent analysis from Realtor.com found that over the last 5 years, homes in high-risk flood and wildfire zones have had slower price appreciation than homes in similar areas with less risk.

“As the impacts of climate change and worsening natural disasters become more well-known, it’s natural for home shoppers to take these factors into account when deciding the purchase price of a home, and tools that make information about these risks more available to buyers will help them make good choices,” said Realtor.com Chief Economist Danielle Hale.

“When buying a home in a flood or fire-prone area, home shoppers should budget for the added costs of home insurance, mitigation practices, and potential losses, which can add to the total cost of ownership for the home.”

What’s Happening With Flood Risk?

Realtor.com analyzed flood risk data from First Street Foundation and found that over the past 5 years, homes with a severe or extreme risk of flooding in 78 coastal counties that had hurricane-related disaster declarations saw a cumulative sales price per square foot growth of 25%, compared to 29% for homes with a moderate or major risk, and 30% for homes with minimal or low risk.

Furthermore, the impact on these homes seems to be getting more prevalent over time. In 2014, 33 of the 78 counties studied saw high-risk properties appreciate slower than those with less at risk, while in 2019, this was true of 40 counties. The trend was most pronounced in Delaware, Florida, Massachusetts, and Maryland.

Perhaps most obvious, homes that experienced a real natural disaster had the slowest growth compared to other regions. For instance, after Hurricane Sandy ripped through the Northeastern United States, home appreciation dipped noticeably lower than homes in risk-averse areas.

What About Wildfires?

Realtor.com data found that between 2014 and 2019, the prices of homes in California within a one-mile radius of historical fire perimeters increased by 32%, compared to 35% for other homes in the same county. This trend has continued into 2020, as prices for homes in fire-prone areas increased by 2.9% year-to-date in 2020 over 2019, versus 5.2% for homes without risk. The price gap was most visible in Lake, Solano, Monterey, Los Angeles, and Sonoma Counties over the 5-year study period.

Key Takeaways for Investors

Good investors know to pay attention to high-risk areas when making sound investments. Most states require real estate agents to disclose whether a home is in a Federally designated flood-risk area, but some states do not require it. Whether you are in one of those states or not, it’s important to do your due diligence to protect your renters and yourself.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.