Home Prices Rising Faster in Cities with High Hazard Risk

It’s a headscratcher: a new report suggests home prices have risen twice as fast in U.S. cities with higher natural hazard risks than in lower-risk cities.

ATTOM Data Solutions, Irvine, Calif., said its annual U.S. Natural Hazard Housing Risk Index reported median home prices in U.S. cities in the 80th percentile for natural hazard risk (top 20 percent with highest risk) have increased more than twice as fast over the past five years and over the past 10 years than median home prices in U.S cities in the 20th percentile for natural hazard risk (bottom 20 percent with lowest risk).

The report analyzed natural hazard risk in more than 3,000 counties and more than 22,000 U.S. cities based on the risk of six natural disasters: earthquakes, floods, hail, hurricane storm surge, tornadoes and wildfires. ATTOM also analyzed housing trends in 3,441 cities and 735 counties, with more than 71 million single family homes and condos, broken into five equal quintiles of natural hazard housing risk.

The report said median home prices in cities in the top 20 percent (Very High) for natural hazard risk appreciated by 65 percent on average over the past five years and by 9 percent on average over the past 10 years while median home prices cities in the bottom 20 percent (Very Low) for natural hazard risk appreciated by 32 percent on average over the past five years and by 3 percent on average over the past 10 years.

“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,” said Daren Blomquist, senior vice president with ATTOM. “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.

However, Blomquist noted 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. “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,” he said.

In Florida, median home prices in cities with the highest flood risk rose by 8 percent on average from a year ago and by 66 percent from five years ago while median prices in cities with the lowest flood risk rose by 10 percent from a year ago and by 70 percent from five years ago. Median home prices in Florida cities with the highest hurricane storm surge risk rose by 8 percent from a year ago and by 47 percent from five years ago, while median prices in cities with the lowest hurricane storm surge risk rose by 11 percent from a year ago and by 67 percent from five years ago.

ATTOM reported a similar trend in Louisiana, which experienced damaging floods in August 2016. Median home prices in Louisiana cities with the highest flood risk fell by 20 percent from a year ago but rose by 2 percent from five years ago while median home prices in the lowest risk cities increased by 5 percent over the past year and increased by 37 percent over the past five years.

The report said homeowners in cities in the top 20 percent for natural hazard risk have 32 percent home equity on average compared to 21 percent home equity on average for homeowners in cities in the bottom 20 percent for natural hazard risk.

Seriously underwater homes (LTV of 125 percent or higher) account for 6.4 percent of all homes in cities in the top 20 percent for natural hazard risk compared to a seriously underwater rate of 9.9 percent on average for homes in cities in the bottom 20 percent for natural hazard risk.

Homeowners who sold in the first six months of 2017 had owned for an average of 8.89 years in cities in the top 20 percent for natural hazard risk compared to an average homeownership tenure of 8.03 years in cities in the bottom 20 percent for natural hazard risk.

ATTOM said among 735 U.S. counties included in the housing trends analysis, those with the highest overall natural hazard index were Oklahoma County, Okla.; Wakulla County (Tallahassee), Fla.; Monroe County (Key West), Fla.; Cleveland County (Oklahoma City), Okla.; and Nevada County (Truckee), Calif..

Among 50 U.S. cities included in the analysis with a population of at least 500,000, those with the highest overall natural hazard housing risk index were Oklahoma City; San Jose, Calif.; Los Angeles; Bakersfield, Calif.; and Seattle.