Climate Change Is Coming for the Housing Market
According to First Street, a climate research firm, weather-related disasters could drive a 380 percent surge in U.S. foreclosures over the next decade. By 2035, nearly one in three foreclosures could be linked to climate impacts like flooding and wind damage.
Who could be the hardest hit? First Street warns that moderate-income households are particularly vulnerable to severe weather damage. Since much of Americans' wealth is tied up in their property values, this trend could lead to financial devastation for many families.
The fallout won't stop with homeowners. As climate-driven foreclosures climb, lenders could face losses of $1.2 billion annually by this year, potentially soaring to $5.4 billion over the next decade as they absorb the cost of mortgage defaults.
But don't assume this crisis will only affect coastal areas. Here's a closer look at where climate-related foreclosures are expected to rise.
According to First Street, U.S. communities most at risk for climate-related foreclosures in the coming years are typically densely populated, high-property-value areas with many underinsured homeowners, often located along the coasts.
Florida stands out as a prime example. It's home to eight of the top 10 counties projected to face the highest credit losses from extreme weather. In particular, Duval County, which includes Jacksonville, could see up to $60 million in credit losses — caused by customers or borrowers failing to repay debts or loans — from 900 foreclosures during a severe weather year, based on CBS's analysis of First Street's data. And it's not just the Southeast — further north, Ocean County, New Jersey, could see credit losses reaching $13 million.
California is also projected to face billions in losses across the state. San Bernardino County, for example, could incur up to $13 million in credit losses, while Sonoma County might see around $2 million. A similar trend is emerging in the South, where Harris County, Texas, which includes Houston, could face losses as high as $34 million.
The financial fallout from climate change won't stop at the coasts. Inland regions like the Mountain West and the Great Lakes are increasingly vulnerable to climate-related credit losses, too.
According to First Street Foundation, flooding is a key driver behind rising foreclosure rates in these areas, particularly where homeowners lack flood insurance and are more likely to default on their mortgages.
Unlike standard homeowners insurance, flood coverage isn't broadly required. It's mandated only for those with federally backed mortgages who live in FEMA's designated Special Flood Hazard Areas. As of August 2023, just 3.1 million flood insurance policies were active under the National Flood Insurance Program. But the true scale of risk goes far beyond that; FEMA's maps identify about 8 million properties in high-risk flood zones, yet First Street estimates nearly 18 million homes nationwide face substantial flood risk.
Why the gap? FEMA's flood maps primarily account for river overflows and coastal storm surges, leaving out a major and growing threat: extreme rainfall. As climate change intensifies, so do rain-driven floods that can hit neighborhoods well beyond the official flood zones.
This insurance blind spot has costly consequences. First Street's analysis of 29 flood events between 2002 and 2019 found that homes outside FEMA's designated zones saw foreclosure rates 52 percent higher, on average, than those within the zones. It's a jarring warning sign: Homeowners who think they're safe, or aren't required to carry flood insurance, may be most at risk.
Unfortunately, FEMA's flood maps aren't likely to be updated anytime soon. The Association of State Floodplain Managers estimates it could cost up to $11.8 billion to complete new mapping — a price tag unlikely to be met, especially amid federal budget cuts across the board.
Given this, experts say the best step homeowners can take is to check whether they have flood insurance.
'If you don't protect yourselves, then when the event does occur, it's completely on you,' Jeremy Porter, head of climate implications at First Street, told CBS. 'You end up having to pay out of pocket and you may go into foreclosure.'
The post Climate Change Is Coming for the Housing Market appeared first on Katie Couric Media.
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Business Insider
42 minutes ago
- Business Insider
America's next big land grab
There's a weird contradiction happening at the base level of America's real estate market. Faced with high borrowing costs and an uncertain economy, homebuilders — the engines of the country's housing supply — are cutting prices and tacking on freebies in an effort to keep sales moving. At the same time, they're also staking out huge swaths of land in anticipation of the next homebuilding boom. The land grab is a signal of faith in the long-term demand for housing, a bet that the sluggish market will turn around, and a recognition of the country's deep housing shortage. It could also end up paying huge dividends for regular homebuyers. Whether these bets pay off, and whether Americans see the benefits, will depend on a little-known breed of investor known as a "land banker." These companies scoop up construction-ready land on behalf of builders (for a fee, of course) and then hang tight, biding their time until their patron is ready to put shovels in the ground. The setup allows builders to "control" land for years before technically owning it, preserving a pipeline of new developments and freeing up cash to, you know, actually build more houses. In recent years, builders big and small have latched onto this maneuver. There's no clear data on the prevalence of this model since land bankers are, by and large, private companies, but investors are most likely setting aside tens of billions of dollars' worth of home lots at builders' behest. In the second quarter of this year alone, Lennar, one of the largest homebuilders in the country, bought nearly 22,000 lots from land bankers for a whopping $2.7 billion. The typical buyer doesn't know — or care — about these exchanges, which take place long before the foundation is poured. But the rise of land banking will play a significant role in the efforts to chip away at our nation's housing shortage. Real estate is cyclical, which means periods of strong homebuilding activity are often followed by a retreat when the economy takes a turn for the worse. Land banking could help builders quickly ramp up production after these soft periods, delivering homes the moment more Americans are ready to take the homeownership plunge. The result would be a more reliable homebuilding machine, and maybe even cheaper houses. For buyers in the near future, that's great news. At risk of stating the obvious, land is the most valuable commodity in real estate. As the aphorism, usually attributed to Mark Twain, goes: "Buy land, they're not making it anymore." Even with unsettled economic conditions and a weak spring selling season, competition for prime acreage remains stiff. It usually takes years to turn a vacant parcel into a single-family home, so builders need a steady pipeline of land to keep their businesses moving. Traditionally, they've taken on short-term loans to buy up lots and get them shovel-ready. But this method of grabbing land comes with some downsides. Money tied up paying for idle land could be put to better use. It's also risky: If the costs of readying that land for construction go up, or if the market slows down and it's not profitable to keep churning out homes, builders are left on the hook. The answer to this conundrum is what builders call a "land-light strategy." Instead of buying up land outright and holding it until they sell the finished homes, they bring in a land banker to purchase construction-ready lots and then pay that investor for the option to build on those lots at a later date. The builder will typically put down a nonrefundable deposit of between 10% and 20% of the land's value and work out a schedule for buying those lots from the land banker sometime in the future, usually two to four years down the road. Without a land banker, a typical land purchase might require a builder to put down, say, 35% of the total value and get a loan for the rest. They'd also have to keep up with pesky line items like taxes and maintenance on the lots. A 10% deposit, on the other hand, allows builders to claim more land with less risk and fewer dollars. That's an especially attractive option for big, publicly traded homebuilders whose financials are scrutinized every quarter by Wall Street. Publicly traded homebuilders have employed this strategy to dramatically expand their land holdings since the onset of the COVID-19 pandemic. In the first quarter of this year, they either owned or controlled nearly 2.4 million lots, up from roughly 1.4 million lots at the same point in 2020, an analysis by John Burns Research and Consulting found. Back in 2017, public builders owned about 64% of their lots and optioned the remaining 36%. Those figures have flipped in the years since. The most recent analysis shows that public builders owned just 26% of their lots and had options on the other three-quarters. Land bankers have been around for decades, but they've really only risen to prominence in the past four or five years. In the past, land bankers were a constellation of small companies or prospecting dreamers that would buy up land in far-flung locations, betting that it would grow more valuable as homebuilders continued to build deeper into the suburbs and exurbs. These days, land bankers are much more buttoned-up, and the industry is now dominated by huge organizations like Walton Global, which says it has $4.5 billion in real estate assets, including 89,000 acres that it plans to feed to builders. The land itself is different, too. Rather than a rocky scrabble or wooded mess that hasn't yet seen a bulldozer, the lots that builders buy from land bankers are typically all set for construction, with the land smoothed over and the roads paved. This leaves builders to focus on what they do best: managing the construction process and selling those homes to consumers. We like to joke about a seven-year cycle and a three-year memory. But I do think the GFC scars ran deep Greg Vogel, CEO of Land Advisors Organization It's not just land bankers who have evolved, though — the entire homebuilding industry has shifted over the past couple of decades. While the size of the current land-buying spree is substantial, it's still far less frenzied than in the years leading up to the global financial crisis in 2008, when builders were hoovering up land the old-fashioned way: using traditional debt to buy the properties outright. Builders absorbed a brutal lesson back then. First, they were stuck with too much land that was suddenly a lot less valuable when the bubble burst. A bunch of builders went belly-up or were forced to offload lots at low prices. Then the remaining builders were forced to play catch-up and seek out more land when housing demand rebounded. The mistakes of that era were a crystallization of the short-term thinking that so often screws over people in the real estate industry. "We like to joke about a seven-year cycle and a three-year memory," says Greg Vogel, the CEO of Land Advisors Organization, a land brokerage firm based in Scottsdale, Arizona. "But I do think the GFC scars ran deep." Land banking, on the other hand, offers a measure of safety and predictability for homebuilders, allowing them to lay claim to home lots without assuming all that risk. Even when the economy hits the skids and builders slow down production, they can rework deals with the land bankers rather than walk away from their land positions altogether. "They learned last time that they're in a much worse position having to go scramble and find land when the market did come back," Katie Hubbard, an executive at Walton Global, tells me. That kind of flexibility will come in handy as homebuilders weather another rough spot. The spring selling season, when builders typically move the bulk of their inventory, was "hugely disappointing," Jody Kahn, the senior vice president of research surveys at John Burns, tells me. Prices for new homes during the typical selling season would be up 4% to 6% from the previous year — John Burns' recent survey of builders indicates that prices dropped in June by about 1.5% year over year. Other data is similarly disheartening for developers: There haven't been this many new homes sitting on the market since the summer of 2009, data from the Department of Housing and Urban Development shows. Roughly 119,000 new homes were available for sale in May, more than triple the number at the same point in 2022. That glut of new homes may help consumers to some degree. Builders are tossing in a bunch of deal sweeteners to get buyers through the door, and some are finally starting to cut prices (typically the option of last resort). But the fact they're even having to do that points to a bigger issue: Many would-be buyers can't afford a new place, and the ones who can are wary of making the leap. The typical mortgage rate is stuck near 7%, up dramatically from the sub-3% rates seen early in the COVID-19 pandemic, which means homebuyers these days are most likely shelling out hundreds, or even thousands, of dollars extra each month on interest payments alone. Many homeowners, who either bought homes or refinanced during the pandemic, don't want to move and give up their cushy low rates. Home prices in most places haven't fallen enough to make a meaningful difference in the affordability picture. Other prospective buyers, having scanned the headlines about tariffs and a wobbly job market, may decide to wait until the economic outlook is less cloudy. When builders can't get rid of homes they've already completed, they're typically forced to pump the brakes on new construction. In the decade after the housing bubble burst, builders delivered about half as many homes as they had in the three decades prior. That's an extreme example, but we're already starting to see builders pull back given the softness in the market. The number of single-family homes going into construction in June dropped about 10% from a year prior. Permits for new single-family homes — the step before construction begins, and an indicator of builders' plans for the future — were down by about 8%. It's not an easy machine to turn on and off. Will Frank, land-banking expert at John Burns Research and Consulting A boom-and-bust cycle isn't good for anyone. 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New York Post
2 hours ago
- New York Post
Billionaire LA Times owner announces he's taking the newspaper public
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Boston Globe
5 hours ago
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Trump's favorability has fallen among AAPI adults since last year, new poll finds
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