Neglected No More: Housing Markets, Mortgage Markets, and Sea Level Rise

In this talk, Professor Benjamin Keys will draw from a recent paper to explore dynamic changes in the capitalization of sea level rise (SLR) risk in housing and mortgage markets. The results suggest a disconnect in coastal Florida real estate: From 2013-2018, home sales volumes in the most-SLR-exposed communities declined 16-20% relative to less-SLR-exposed areas, even as their sale prices grew in lockstep. Between 2018-2020, however, relative prices in these at-risk markets finally declined by roughly 5% from their peak. Lender behavior cannot reconcile these patterns, as both all-cash and mortgage-financed purchases have similarly contracted, with little evidence of increases in loan denial or securitization. The authors propose a demand-side explanation in which prospective buyers have become more pessimistic about climate change risk than prospective sellers. The lead-lag relationship between transaction volumes and prices in SLR-exposed markets is consistent with dynamics at the peak of prior real estate bubbles.

Benjamin Keys is the Rowan Family Foundation Associate Professor of Real Estate and Finance at Wharton School of Business at the University of Pennsylvania.

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