According to a new Zillow analysis, in partnership with ClimateCheck, areas with higher flood risk are seeing an increase in mortgage denials and withdrawals. And despite the risks, home values in these areas continue to grow faster than in areas with lower flood risk. 

That may change with the impact of Hurricane Ian, but so far, floods are the only climate risk affecting homebuyer behavior. 

The rest—fire, drought, heat, and storms—have minimal effect on mortgage lending. 

Flood risk driving up mortgage denials and withdrawals

While climate risks generally haven’t cooled housing demand, today’s buyers may be paying more attention than before to these risks when shopping for a home. 

In Zillow’s analysis for 2021, census tracts with a 10% higher share of buildings with a high flood risk saw a 0.23 percentage point increase in mortgage denials. They also saw a 0.23 percentage point increase in applicants who withdrew their mortgage application. 

At this point, floods are the only climate risk having even the slightest impact on buyer decisions. But as summer temps climb and we measure the total cost of Hurricane Ian, more buyers may gravitate toward lower-risk areas. 

The higher rates of mortgage application denials and withdrawals in high-flood-risk areas are an encouraging signal that buyers and lenders are more often including flood risk in their decision-making. Living around desirable coasts and other bodies of water, which tend to be more flood-prone areas, will continue to be a draw for home buyers, but more and more are considering the additional risk. We have not yet seen other types of climate risk make a dent in home-buying practices, so there is a lot of room left for change and continued education.

Nicole Bachaud

Zillow Senior Economist

Hurricane Ian’s impact

Recent episodes of The Real Word and The Walk Thru have covered some of the damage caused by Hurricane Ian, but the full extent of the damage is still unknown, not to mention the loss of life and the toll the storm has taken on residents in the areas hit. 

A storm like this might convince some homebuyers to rethink buying real estate in flood-prone areas. But homes in these waterfront metros continue to appreciate. 

That said, the slight increase in mortgage withdrawals for homebuyers shopping for a primary home suggests the possibility that flood risk impacts buyer behavior. 

It’s anyone’s guess whether that impact will grow or diminish in the next twelve months. 

High-risk areas see an increase in investment home purchases

In 2021, areas with a higher flood risk were seeing a 0.72 percentage point drop in mortgage applications for primary homes—and a 0.27 percentage point increase in applications for investment properties. 

Both findings, taken together, could mean a few things: 

  • Mortgage applicants prefer to buy investment properties in these areas rather than primary homes.
  • Homebuyers are less willing to buy their primary homes in flood-prone areas.
  • Investors are more willing to risk their assets by buying properties in these areas. 

Also, with prices rising faster in areas with high flood risk, homebuyers looking for primary homes will find them increasingly more difficult to afford. Investing in these areas will be easier for higher income buyers who own multiple properties. 

Top takeaways for real estate agents

If you’re in an area with high flood risk, encourage your clients to invest in flood insurance, assuming their mortgage lender hasn’t already required it. 

You can also provide the information they need to minimize the damage from a flood, along with when to evacuate the area, contractors you trust for home repair, and verified relief funds they can support. 

Make sure your clients know the risks involved, as well as the benefits of living in the neighborhoods they’ve chosen. And be prepared to step up when disaster strikes.