As the effects of climate change become more devastating and more widespread, homebuyers are beginning to take climate risks into consideration when making home purchasing decisions, Zillow reports. While extreme weather events haven’t put a dent in overall buyer demand, an increase in flood risk corresponds with an increase in mortgage denials in high-risk areas, meaning that home purchases in areas of high flood risk are becoming more expensive.
From 2012 to 2022, ZIP codes with higher flood risk saw higher home value appreciation, causing buyers and lenders to second guess home purchases and pre-approvals around coasts and other bodies of water.
The analysis shows that, in 2021, census tracts with a 10 percentage point higher share of buildings at risk for flooding corresponded with a 0.23 percentage point higher mortgage denial rate. While it’s unclear whether more acute flood risk factors into the increased denial rates, the higher prevalence of denials is notable. Similarly, tracts with a 10 percentage point higher share of buildings at risk for flooding in 2021 was associated with a 0.23 percentage point higher share of applicants who pulled their application before it was either denied or a loan was originated.
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