Real Estate

The silent storm: How severe weather challenges a housing recovery

As the housing market continues to recover, risk managers also continue to look for potential risks that could affect the market. It seems that natural disasters have become the most common risk, with severe droughts, wildfires and tornadoes filling the headlines. 

In 2012, natural hazards caused $122 billion in total losses across the country, according to Munic RE, and $62 billion in insured losses. 

What remains unclear, however, is the direct impact of natural hazards on the $18 trillion in housing assets and $9 trillion of mortgage debt outstanding, CoreLogic noted in a recent market update.

It seems like no coincidence that most of the mortgage debt in the U.S. today is on the coasts in the Washington-New corridor, coastal California, the Northwest, Florida and the Southeast, as well as in Texas and Chicago, according to CoreLogic.

Combining the risk of tornado and hurricane winds, and, assuming they are independent of each other, there is a total of $1.4 trillion of exposed mortgage debt, representing 18.5% of the total amount of U.S. mortgage debt outstanding. 

“The risk exposure that natural hazards present is important to understand in order to arrive at a more integrated analysis and understanding of the risk that an asset-backed loan presents,” said CoreLogic. “As we have seen in recent natural disasters, natural hazard risks can quickly change the loss risk equation.”

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