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The recent wildfires in Los Angeles have highlighted a growing concern, the escalating insurance cost. While it's too early to quantify the financial impact fully, experts agree that the effects will ripple nationwide, pushing up insurance premiums and influencing property values.
According to climate-risk firm First Street, by 2055, 84 per cent of US homes could experience a decline in value, resulting in losses of approximately $1.47 trillion.
The insurance industry is expected to see premiums rise by an average of 25 per cent over the next three decades. This increase is driven by the underpricing of current risks and the growing threat of climate-related events. While the national average property value decline is projected at around 3 per cent, certain regions, including parts of Texas, Florida, and Louisiana, could face significantly higher losses, with home values potentially halved.
The risk to property values is not only driven by rising insurance costs. Communities could also face increased taxes to fund climate resilience measures, and maintenance and energy costs may rise, further reducing home values. Climate change is already proving to be a tangible force reshaping the real estate market, and experts warn that the situation will worsen as extreme weather events become more frequent and severe.
However, as of now, climate change factors are not being directly accounted for in property valuations, which could result in greater market volatility. Meanwhile, some experts are taking proactive steps by advising institutional investors on how to hedge against climate-related risks in real estate.
As the cost of insurance rises and climate change continues to take its toll, the real estate market faces an uncertain future, with significant implications for homeowners and investors alike.
