Watching footage of natural disasters such as hurricanes Harvey, Irma or Maria might make one expect home prices to be higher in cities where there is less risk of natural disasters, but the opposite is actually true, according to the latest 2017 U.S. Natural Housing Risk Index from ATTOM Data Solutions, a multi-sourced property database.
The report found median home prices increase the fastest in cities in the 80th percentile for natural hazard risk, or the top 20% of cities with the highest risk. These cities increased twice as fast over the past five and ten years than the 20% of cities with the lowest risk of natural disaster.
“Strong demand for homes in high-risk natural hazard areas has helped to accelerate price appreciation in those areas over the past decade despite the potential for devastating damage to homes that can be caused by a natural disaster, as evidenced by the recent hurricanes that made landfall in Texas and Florida,” ATTOM Senior Vice President Daren Blomquist said. “That strong demand is driven largely by economic fundamentals, primarily the presence of good-paying jobs, although the natural beauty that often comes hand-in-hand with high natural hazard risk in these areas is also attractive to many homebuyers.”
For the report, ATTOM indexed natural hazard risk in more than 3,000 counties and more than 22,000 cities based on the risk of six natural disasters: earthquakes, floods, hail, hurricane storm surge, tornadoes and wildfires.
As median home prices in the riskiest 20% of cities rose 65% on average over the past five years and 9% over the past 10 years, median home prices in the 20% of least risky cities increased only 32% over the past five years and 3% in the past 10 years.
“There is some evidence in the data that real estate consumers in certain areas are beginning to more heavily factor natural hazard risk into their decisions, particularly when it comes to flood risk,” Blomquist said. “Counter to the national trend, home price appreciation is slower in Florida and Louisiana cities with the highest flood risk than in cities with the lowest flood risk.”
For example, median home prices in Florida cities with the highest hurricane risk increased 8% from last year and 47% from five years ago, while median home prices in cities with the lowest risk increased 11% from last year and 67% from five years ago.
But while home prices may be rising more rapidly, this has its benefits for homeowners in higher risk areas, who have 32% equity on average, as compared to the 21% average equity for homeowners in lower-risk cities.
And perhaps due to the high home prices, homeowners in cities with a higher risk of natural disasters also hold a higher tenure in their homes. Those in the 20% most risky cities who sold in the first six months of 2017 had owned their home an average 8.89 years, compared to 8.03 years for cities in the bottom 20% of natural hazard risk.