Freddie Mac: Climate change threatens the future of housing

What will happen if a home is literally underwater?

The future of the housing market may be heating up, literally.

According to Freddie Mac’s April 2016 Insight report, climate change poses a new threat to the housing industry due to the possibility of rising sea levels.

How so?

Some new impacts of climate change such as rising sea levels, changing rainfall and flooding patterns and increasing temperatures may not be insurable, according to the report. 

"One challenge for housing economists is predicting the time path of house prices in areas likely to be impacted by climate change,” Freddie Mac Chief Economist Sean Becketti said. “Consider an expensive beachfront house that is highly likely to be submerged eventually, although 'eventually' is difficult to pin down and may be a long way off. Will the value of the house decline gradually as the expected life of the house becomes shorter?”

“Or, alternatively, will the value of the house — and all the houses around it — plunge the first time a lender refuses to make a mortgage on a nearby house or an insurer refuses to issue a homeowner's policy?” Becketti said. “Or will the trigger be one or two homeowners who decide to sell defensively?"

These threats are dangerous to homeowners because many times, a large share of their wealth is in the equity of their home, the report states. If these homes become uninsurable, the home values would sink, possibly even to nothing, and without hope of recovery.

Also, Freddie Mac warns if a home is literally underwater, it is not likely they would continue to make mortgage payments, causing a ripple effect in the housing industry, and major losses for servicers and mortgage insurers.

"Currently, under federal law, flood insurance is mandatory for all federal or federally-related financial assistance for the acquisition and/or construction of buildings in Special Flood Hazard Areas,” Becketti said. “In addition, Freddie Mac requires flood insurance before it will purchase a loan for a property in an SFHA.”

“As the market shakes out in the affected areas some residents will cash out early and suffer minimal losses,” Becketti said. “Others will not be so lucky. And newcomers may appear, finally able to live out their dreams of living at the seashore, if only for a short time."

Whereas the federal, state, and local government has already been trying to put forth legislation that would slow climate change, and reduce the emission of greenhouse gases, according to the National Association of Home Builders, other sources, such as this, this, and this claim that global warming is a hoax, or even a conspiracy. This article by Conserve Energy Future sums up the top arguments for and against climate change.

Time will tell, at any rate.

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