For decades, real estate trends fell into a predictable trend. Location, affordability, and job opportunities were key driving factors. But now, another powerful force is reshaping the housing market: climate risk. Wildfires, hurricanes, floods, and extreme heat are no longer just occasional problems. They’ve become a pressing reality directly impacting property values and home insurance costs.

In addition to direct effects, this also squeezes buyers through insurance. Insurance costs are rising faster than mortgage payments, driving buyers away from areas like the Sun Belt and the West Coast, and it’s only about to get worse.

Climate change is reshaping the fundamentals

The report from First Street, a climate risk financial modeling company, provides a sobering picture of how climate change is eroding homeownership in America.

Climate change is causing more frequent and severe disasters, leading to increased damage to homes from wildfires, floods, hurricanes, and extreme heat. Rising sea levels are affecting coastal properties, while stronger storms and heavier rainfall are causing unprecedented flooding. In addition to direct destruction, these events can also affect foundations and weaken structures​.

Wildfires are spreading faster and burning more intensely, leveling entire neighborhoods, as we’re seeing now in California. This can have a lasting effect. Take the Camp Fire in California (2018), for instance. After the fire, home values plummeted 42% and haven’t rebounded​.

At the same time, this damage drives up repair and insurance costs, making it more expensive to maintain homes in high-risk areas and forcing many insurers to withdraw coverage​. This combination of physical destruction and financial burden makes homeownership increasingly unsustainable in many climate-vulnerable regions.

Then, there’s insurance.

Insurance premiums are surging

Home insurance has long been a critical tool for protecting homeowners from financial ruin. But as climate disasters grow more frequent, insurers are recalculating the risks and asking for more money. This results in dramatic increases in premiums and, in some cases, insurers pulling out of high-risk areas altogether.

Between 2013 and 2022, home insurance costs doubled, now making up more than 20% of mortgage payments in some high-risk regions (this is not just happening in the US, either). In areas prone to hurricanes and wildfires, homeowners face deductibles reaching tens of thousands of dollars​. These soaring costs threaten the traditional 30-year mortgage model that has defined American homeownership for generations.

Flood insurance is also undergoing a major shift. The Federal Emergency Management Agency (FEMA) has updated its pricing model to reflect actual risk, causing flood insurance premiums to surge by as much as 500% in some regions​. This change means that many homeowners who once relied on affordable, subsidized insurance now face massive bills.

“Ultimately, environmental stressors and associated rising homeownership costs are together reshaping home values. With residential real
estate representing one of the largest economic sectors in the country, these shifts will result in serious impacts that ripple through communities,” the report reads.

Widespread property devaluation

Climate change is no longer a distant threat—it is already reshaping where and how we live.

The U.S. housing market is now at a turning point. Traditionally desirable locations — beachfront properties, sunny southern states, and forested mountain towns — are increasingly risky investments. Meanwhile, climate-resilient communities are starting to emerge as new real estate hot spots.

As more homeowners struggle to get insurance, the report forecasts widespread property devaluation. Overall prices are likely to still increase, but not as much as they would without climate change. Insurers may continue retreating from high-risk areas, leaving homeowners dependent on costly state-run programs.

“By 2055, 70,026 neighborhoods (84% of all census tracts) may experience some form of negative property value impacts from climate risk, totaling $1.47 trillion in net property value losses due to insurance pressures and shifting consumer demand,” the report concludes.

As the housing market adjusts to these realities, the American Dream of homeownership may look very different in the decades to come.

You can read the report, in its entirety, here. It has not been peer-reviewed.