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Climate Change Started Impacting Buyer Decisions in 2013

A new study looked at home sales rather than prices to determine the point when buyers started discounting a home’s value based on its proximity to areas that might flood.

MIAMI – Homebuyers weigh a number of factors before deciding to bid on a home, and the possibility of flooding is one of them. A paper published Oct. 12 by the National Bureau of Economic Research attempted to define the point when climate-change concerns started to impact overall buyer decisions.

According to the study, concern about climate change and rising seas has been impacting home values in some areas of Florida for at least a decade. However, that doesn’t mean that home values in at-risk flood areas aren’t still rising in many areas – only that the fear of climate change has changed some of the market dynamics.

“The downturn started in 2013, and no one noticed,” says Benjamin Keys, the paper’s lead author and a professor of real estate and finance at the University of Pennsylvania’s Wharton School. “It means that coastal housing is in more distress than we thought.”

Researchers examined data for 1.4 million home sales in Florida over 20 years, and compared two types of coastal census tracts – those on land where more than 70% of developed land is less than six feet above sea level, and those where less than 10% of developed land meets that criteria.

Rather than look at home price changes, however, the researchers considered sales volume rather than price changes to determine the starting date, saying falling sales are a reliable predictor of later price drops. “First, prospective buyers become reluctant to pay the price that sellers are asking,” according to a New York Times article. “But sellers, not wanting to take a loss, often hold out for months or even years, before grudgingly starting to accept lower bids.”

The researchers identified a decline in low-lying coastal area sales starting in 2013, followed a few years later by a drop in prices compared with safer areas. At the same time, sales and prices continued to grow on less vulnerable land. By 2018, sales in vulnerable areas trailed safer areas by 16% to 20%.

According to Keys, the growing gap in sales volume between safer and riskier areas suggests that the price gap over the past two years isn’t just the normal boom-and-bust cycle of Florida real estate, but part of a longer trend. However, some city leaders disagree, saying that the recent declines are part of the natural cycle of Florida real estate – and the market has shown signs of recovery in the past few months.

New York Times (10/12/20) Flavelle, Christopher

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