Climate mispricing in US property will be tough to fix

Subject

Climate change risks and housing gmarket dynamics.

Significance

Climate change is raising sea levels and increasing the incidence of high-intensity storms. The risks associated with owning a home in a high-risk area are rising, but US flood insurance premiums, mortgage lending and property values are underpricing these risks.

Impacts

• Investors may grow wary of residential-mortgage-backed securities as these assets can be packaged from the same at-risk regions.
• High-cost storms are a major risk to homeowners and mortgage lenders, and will be increasingly considered ahead of transactions.
• Private insurers are priced out of US flood insurance, but policy will enable more private activity as the market grows.