Climate Concerns Reshaping Housing Market as Insurance Costs Rise
The housing market is undergoing a significant transformation due to growing climate concerns and rising insurance costs. Homebuyers, particularly those looking at properties in high-risk areas, are finding it increasingly challenging to secure affordable insurance coverage.
Eloy Carmenate, a seasoned real estate agent in Florida, notes that obtaining home insurance before buying a property has become a major hurdle. “It’s always been a requirement to have insurance if you’re getting a mortgage, but it wasn’t the big deal it’s become in the last few years,” Carmenate explains. The combination of higher premiums and difficulty in finding coverage is causing some homebuyers to reconsider purchasing properties in areas prone to flooding and other natural disasters.
Impact on Home Sales
An analysis of homes listed for sale nationally in June 2024 revealed that properties with high flood or fire risks took an additional 12 days to sell compared to low-risk homes, according to a Zillow report. Homes with high flood risk typically sold for 6 percent below list price, while homes in areas at high risk of wildfires saw a 1.4 percent discount.
Rising Insurance Costs
The insurance industry is grappling with an increase in extreme weather events by hiking rates to cover losses. The average cost of home insurance for a policy with $300,000 in dwelling coverage increased 7 percent from June 2022 to April 2025, rising from $2,116 to $2,267, according to data from Quadrant Information Services. This doesn’t include flood insurance, which requires a separate policy and has also seen significant increases.
Consequences for Homebuyers
For some potential buyers, hefty insurance premiums may lead to mortgage denials as they boost monthly housing-related expenses above the level that mortgage lenders will approve. Lenders use a formula combining monthly payments known as PITI (principal, interest, taxes, and insurance), which typically shouldn’t exceed 28 percent of a borrower’s gross monthly income.
“A big insurance premium has the potential to knock someone out of the market,” warns Carmenate. As a result, homebuyers are becoming more cautious, particularly in high-risk areas.
Insurers of Last Resort
To limit exposure, some of the nation’s largest insurers have left high-risk markets in states like California, Florida, and Louisiana. Others are limiting their exposure by issuing nonrenewals for high-risk properties. This has led to a situation where homeowners in these areas are forced to rely on state-mandated “insurers of last resort,” which often come at a higher cost and with less comprehensive coverage.
The changing climate is profoundly reshaping the housing market, with rising insurance costs becoming a significant factor in homebuyers’ decisions. As Kara Ng, a senior economist at Zillow, notes, “The risk of natural disasters and rising insurance costs are profoundly reshaping the housing market. Homebuyers are paying attention.”
More than 80 percent of home shoppers now consider climate risks when looking for a new home, according to Zillow data. The most significant concern for prospective buyers is flood risk, followed by wildfires, extreme temperatures, hurricanes, and drought.
As the housing market continues to evolve in response to climate change, it’s clear that insurance costs will play an increasingly important role in homebuying decisions. Homebuyers, insurers, and policymakers will need to adapt to these new realities to ensure the continued stability of the housing market.
