A new analysis by First Street reveals that extreme weather linked to climate change could significantly impact American homeowners and lenders financially. Over the next decade, foreclosures in the U.S. may surge by 380%, with climate-driven events accounting for up to 30% of all foreclosures by 2035, a jump from about 7% this year. Low-to-middle income households are particularly at risk.
The study predicts that lenders could face annual losses of $1.2 billion by 2025, escalating to $5.4 billion in ten years. Rising insurance premiums and increased repair costs due to climate risks contribute to higher foreclosure rates. For example, a 1% rise in insurance costs is expected to increase national foreclosure rates by about 1%.
Several states, including Florida, Louisiana, and California, are likely to see significant climate-related mortgage losses. The analysis points out that many homes at risk of flooding are not included in FEMA’s designated flood zones, leaving homeowners unprotected.
First Street recommends integrating climate risk into loan valuations to better prepare both lenders and homeowners, although this may tighten lending terms and raise housing prices. Flood events in particular are a major concern, as many homeowners lack flood insurance. Overall, the data underscores the urgent need to address climate-related risks in housing markets.
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