Florida Real Estate Home Prices Expected to Drop

07 May

According to a new report by the McKinsey Global Institute, real estate values in Florida will continue to drop due to climate change and rising sea levels. The report found that real estate values have already dropped by an estimated $5 billion dollars and that number could climb to $80 billion over the next 30 years.

“While the Florida residential real estate market remains robust today, climate risk poses a potential threat to asset prices,” the 29-page report advised.

The McKinsey Global Institute projects that property values could decline by between $10 and $30 billion by 2030 and that number could jump up to $30 to $80 billion by 2050.

“The devaluation could be larger, and potentially result in an absolute decline in the value of homes relative to their prices today, for example, if flooding regularly affects public infrastructure or if homeowners more aggressively factor climate risk into their buying decisions,” the report warns.

Storm Surge and Nuisance Flooding the Biggest Problem

The report focused on the impact that storm surge and tidal flooding will have on property rates. This type of flood damage is often called “nuisance” flooding and it often takes place even when there is no severe weather such as a hurricane. 

Data shows that nuisance flooding is roughly 300% to 900% more frequent in U.S. coastal areas now than it was a mere 50 years ago. This is only expected to get worse as sea levels rise due to ocean warming and higher atmospheric temperatures. Warmer temperatures lead to expanding ocean waters and melting glaciers and ice sheets which raise ocean levels. 

In addition to higher water levels, warmer ocean temps lead to more intense storms and hurricanes which often results in storm surge. 

The Sunshine State is particularly vulnerable to the impacts of climate changes as real estate is a major economic driver in Florida. According to the report, Florida brings in about 22% of its GDP which translates into about $1 trillion, from real estate.

Currently, 30 percent of local government tax revenue comes from property taxes and about two thirds Florida’s 22 million people live in counties that border the coast. In addition, about 10 percent of the population have a home that is at an elevation of less than 5 feet above sea level.

Some Areas Hit Harder Than Others

The rising sea levels will hit some areas of Florida harder than others according to the report. Roughly nine Florida counties are most at risk for property value declines. These counties include: Palm Beach, Broward and Miami-Dade as well as Citrus, Pinellas, Manatee and Lee on the Gulf Coast. St. John’s on the Atlantic Coast and Monroe County in the Florida Keys are also at increased risk when compared to the rest of the state. 

In addition to dropping home values, homeowners in these areas have to deal with higher Florida homeowner insurance premiums as well as higher maintenance costs for the property. 

“Home prices may be influenced not just by today’s level of hazard, but also by expectations of how hazards could evolve,” the McKinsey report stated. “The resale potential, maintenance costs, and comfort and convenience of a home in the future are all factors buyers consider.”

The McKinsey report is just one analysis that paints a not so rosy picture of Florida’s property value future due to climate change and rising sea levels. Other reports have predicted that lenders may stop offering 30-year mortgages in areas that they feel are vulnerable to flooding and rising sea levels. 

Unfortunately, home buyers and investors have paid little attention to these warnings, it is estimated that 640 people a day moved to the state last year. The Florida Chamber of Commerce currently projects Florida’s population will hit 26 million in the next decade with the majority of the growth expected to be in coastal areas.

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