A little-known trend
may now accellerate.

As I write, hurricane Florence is destroying homes and neighborhoods and changing the shape of our shoreline. It has forced 1.5 million people to leave their homes. The recovery will drain the savings of millions.

But will it trigger a new attitude toward living near the ocean?

In the past, as coastal homeowners cleaned up and rebuilt, their properties regained their value. Then they continued to appreciate along with the rise in home prices regionally. This time may be different. Florence could herald a quick drop and a continuing slide in values for coastal properties. Not because this storm is worse than most, which it is. Not because FEMA screws up again, if they do. And not because coastal Carolina won’t maintain its beauty.

The reason Florence could permanently depress coastal prices is that already a significant number of home buyers have quietly decided that coastal properties are not good investments.

A long-term slide in floodable home prices has started.

This growing attitude applies not just to houses on the waterfront. Findings show that even homes away from the shore have been losing value, if they can flood from storm surge, abnormally high tides or, soon, sea level rise.

New studies have documented these losses.

  • First Street Foundation found the total amount of home value depreciation has reached $14.1 billion in eight states, thanks to the threat of seawater flooding. They reached those conclusions by comparing historical transactions of homes exposed to tidal flooding with like properties in similar but climate-proof neighborhoods elsewhere.
  • Research titled “Disaster on the Horizon: The Price Effect of Sea Level Rise” by the University of Colorado at Boulder and Pennsylvania State University found floodable homes worth 6.6 percent less than unexposed homes. The most vulnerable properties, those that would be flooded after the sea level rises by just one foot, were selling at a 14.7 percent discount.
  • “Rising Seas, Chronic Floods, and the Implications for US Coastal Real Estate,” another study, predicts that, hundreds of US coastal communities will soon face chronic, disruptive flooding that directly affects people’s homes, lives, and properties. The study published The Union of  Concerned Scientists describes the risks and adds “Yet property values in most coastal real estate markets do not currently reflect this risk. And most homeowners, communities, and investors are not aware of the financial losses they may soon face.”
  • Attom Data Solutions, the real estate statistics company, has made the same finding. They report states “Between 2007 and 2017, average home prices in areas facing the lowest risk of flooding, hurricanes and wildfires have far outpaced those with the greatest risk.”

If floodable homes are losing value, how come we don’t see this in real estate statistics? Home prices continue to rise. It turns out that lower-elevation, more exposed properties, even those that haven’t yet been flooded, are just not growing in value compared to similar homes inland. For instance, a coastal owner may rejoice in a 10% home value increase over the past three years, without knowing that similar homes, in towns safe from flooding, appreciated 25%.

Storm damages are just the visible costs.

A few years from now, most of the damage will be repaired and homes may look normal – after applying a lot of personal savings, federal disaster relief, and maybe home insurance. But there are other longer-term costs, and these are shared by all residents of the town, not just those in the flood zone. Big repairs may be needed to public buildings, streets, and water and sewer systems, likely raising local and state taxes, fees, or bond payments. And when home prices drop, the tax base drops. Towns that rely on property taxes will find their revenues squeezed. When this happens, police, fire services, etc. often suffer.

These negative effects can reinforce each other. A town with a damaged landscape, home price erosion, and strained municipal finances is less attractive to smart home buyers. This loss of attractiveness can be slow and gradual. But it could be fast. And it could be widespread. Any coastal homeowner well away from Hurricane Florence can see that ‘there but for the grace of Aeolus go I.’

A rush for the exits in the coming months?

Stock and bond buyers and sellers anticipate. They reprice an asset much faster than any actual change in the company’s current performance. The same thing applies to home prices.

I predicted in Climate-Proof Your Personal Finances, that “Awareness could grow suddenly when the popular media notice that waterfront property prices are declining and make it a hot topic. . . Assets could get re-priced fast.” John Englander, author of High Tide on Main Street, has been telling us “Coastal property values will go underwater long before the land does.”

It’s obvious that owners of floodable homes can sell their property, buy a more climate-proof home, maybe migrate to a more climate-proof neighborhood in another state. What’s not obvious is the timing. When is the right time to take such steps. If Hurricane Florence reinforces Americans’ growing reluctance to own property in a floodable community, the ‘right time’ may come a lot sooner that we expect.