Navigating the New Normal: The Impact of Climate-Related Events on Real Estate Markets and Appraisals

In recent years, climate-related events have begun to affect areas that were once considered less vulnerable. From wildfires in Lahaina, Hawaii—an area not traditionally known for such occurrences—to drought-induced saltwater intrusion in the Mississippi River, new environmental challenges are influencing landscapes and communities. This article, from our own David Foster, Enact’s Senior Real Estate Appraiser, will examine how these environmental changes could impact real estate markets and appraisals, particularly in coastal and mountainous regions.

Emerging risks in unfamiliar territories

Wildfires, droughts, and extreme weather events are becoming more frequent and severe, even in places where such events were once rare. In 2023, in Lahaina, HI, wildfires affected a community that had not previously faced this level of risk. Similarly, drought conditions along the Mississippi River have allowed saltwater from the Gulf of Mexico to encroach upon freshwater supplies, presenting challenges for cities like New Orleans. Texas has also experienced severe winter storms, revealing vulnerabilities in infrastructure and prompting many homeowners to reconsider their preparedness for such events. These instances highlight a growing reality: climate and environmental risks are no longer confined to high-risk areas but are expanding into regions once thought to be safe.

Water use regulations and urban heat

In Las Vegas, NV, a city known for its arid climate, new regulations are being introduced to limit water usage, including the replacement of natural lawns with artificial grass. While this measure can help conserve water, it may also contribute to urban heat, as artificial surfaces absorb and release heat, potentially raising local temperatures. Additionally, reduced soil absorption during rain or snowmelt could increase the likelihood of flash flooding, creating challenges for urban planners and residents.

Coastal concerns: the Florida and Outer Banks experience

In Florida, rising sea levels may affect coastal markets. Additionally, the increased frequency of destructive hurricanes has led some insurance companies to reduce their coverage in these areas, complicating the situation for homeowners and potential buyers. Similarly, the Outer Banks of North Carolina are grappling with the threat of rising waters, putting beachfront homes at risk. As rebuilding in affected areas becomes more challenging, the future of these communities may depend on how residents and local governments adapt to these ongoing challenges. Will hopeful homeowners still want to consider the coast for a home, residential or vacation/secondary home, despite the financial risks that accompany the increasing environmental ones?

The impact on vacation and second homes

The effects of climate change extend beyond primary residences, increasingly impacting vacation and second homes, and not just on the coasts. Tropical Storm Fred in 2021 and Hurricane Helene in 2024 caused significant damage in the mountains of North Carolina, affecting small vacation towns. As property owners assess the costs and risks associated with rebuilding, some may choose not to invest in second homes, influencing market dynamics. This shift in preferences could affect both lenders and borrowers as they navigate an evolving housing market.

A shift in real estate preferences

As climate-related events become more common, buyers may begin to favor areas they perceive as less vulnerable. However, even the areas previously seen as less vulnerable are increasingly impacted by environmental changes. This could lead to a shift in real estate demand, with coastal and mountainous regions potentially losing some of their appeal. Areas once considered low-risk may experience increased interest, but this shift could also bring new challenges and considerations. The long-term effects on property values in these areas remain uncertain as consumer preferences evolve.

The need for continuous monitoring

The effects of natural disasters and other climate-related events on real estate markets are multifaceted. Immediate consequences, such as rising insurance costs and higher rebuilding expenses, may be difficult to gauge in real-time. However, these changes could have long-lasting impacts on property values and marketability. Historically, communities affected by disasters have often experienced recovery, but as impacts reach new areas, ongoing monitoring and analysis will be essential. Understanding how environmental events are influencing market conditions will be important for buyers, sellers, and investors.

Help borrowers navigate natural disasters with GSE guidelines

Every borrower scenario is unique, but with the ongoing shifts in climate-related events, it’s important to be prepared and knowledgeable to best help borrowers navigate their situation—perhaps even after they’ve bought a house.

Staying up to date on GSE guidelines can help! Read up on Freddie Mac guidelines and Fannie Mae guidelines to understand how they handle natural disasters. For more information on other related guidelines, refer to Freddie Mac’s Seller/Servicer Guide and Fannie Mae’s Selling Guide and Servicing Guide. There are many pages and FAQs available on their sites regarding these topics to aid you and your borrowers throughout the homebuying and ownership journeys.

As we navigate this new normal, it’s clear that the interplay between the environment and real estate is evolving. Communities must adapt, and potential buyers should remain informed about the risks associated with their desired locations. By staying proactive and knowledgeable, we can better understand and mitigate the impacts of climate-related events on our homes and investments. Now is the time to consider these factors in real estate decisions.

More ways we can help

We offer underwriting services, along with training resources, to help you understand the nuances of navigating an ever-evolving mortgage marketplace. Be prepared and stay proactive to help your borrowers navigate the mortgage process more effectively.

Source: David Foster is a Senior Real Estate Appraiser at Enact Mortgage Insurance.

The statements in this article are solely the opinions of David Foster and do not necessarily reflect the views of Enact or its management.

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