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Is climate change creating a real estate bubble we shouldn\u2019t ignore? And who\u2019s going to get hurt if that bubble bursts? Yale\u2019s Climate Connections newsletter just reported on a study that claims there\u2019s a massive bubble forming because property values don\u2019t include climate risks like flooding and wildfires. The 2023 Nature Climate Change study also suggests six ways to reduce this risk and potentially keep this bubble from bursting. (1) \xa0 Hi, I'm Kathy Fettke and this is Real Estate News for Investors. Please remember to subscribe to this podcast and leave us a review. \xa0 Although climate change skeptics may feel we are experiencing normal weather patterns, many people are concerned that severe weather events are increasing in number and intensity. We\u2019ve been seeing increased storm-related flooding in some areas and more drought-related wildfires in others. Some inland areas are also dealing with water scarcity and extreme heat while coastal areas are faced with the threat of rising sea levels. \xa0 The \u201cBrittleness Bubble\u201d \xa0 The Yale newsletter cited climate futurist Alex Steffen for his definition of the so-called \u201cBrittleness Bubble.\u201d Steffen says: \u201cAs awareness of risk grows, the financial value of risky places drops. Where meeting that risk is more expensive than decision-makers think a place is worth, it simply won\u2019t be defended. It will be abandoned.\u201d He says: \u201cThat will then create more problems. Bonds for big projects, loans and mortgages, business investment, insurance, talented workers \u2013 all will grow more scarce. Then, values will crash.\u201d \xa0 Overvaluation of Homes \xa0 The Nature Climate Change study pegged the overvaluation of U.S. homes in flood zones at around $200 billion, but a study done last year by consulting firm Milliman had a much higher number. In the Milliman study, researchers calculated the overvaluation at more like $500 billion. \xa0 These figures apply to flood risk, and don\u2019t account for the impact of other weather-related risks like wildfires. California is suffering the impact of highly destructive wildfires that have been increasing in number and intensity. And that\u2019s pushing up insurance rates, making it unaffordable for many people to rebuild or buy homes in high-risk areas. The Southwest has also been dealing with a long-time drought although recent winter rains have helped to replenish reservoirs. But water scarcity and extreme heat are a growing problem in many areas. \xa0 Reducing the Risk \xa0 The report goes on to list six ways to help prevent this bubble from bursting, which I will briefly share with you. \xa0 1 - The first is to require sellers to fully disclose flood risks. The study says that, in general, properties that are highly overvalued are in coastal counties which often don\u2019t require flood-risk disclosures. Some property listing websites will show you this info however, such as Redfin and Realtor.com. Floodfactor.com also provides property-specific risk ratings. \xa0 2 - The second suggestion is to raise awareness about climate change which might lead to policy changes about development in risky areas. This will likely happen as more people suffer the impact and media attention grows.\xa0 \xa0 3 - Third on the list of suggestions is to charge market-based insurance rates instead of subsidized rates provided by the National Flood Insurance Program. The NFIP has issued new risk ratings called Risk Rating 2.0. That has brought insurance costs closer to what they need to be, but it\u2019s a slow-going process because there are yearly rate-hike caps. \xa0 4 - The fourth suggestion is to reduce federal subsidies for properties in risky areas.\xa0 These subsidies come in the form of supplemental disaster relief with no requirements for long-term flood-risk strategies. The study authors say it\u2019s a complex issue that will take a lot of effort to tackle because there isn\u2019t much political support or funding to get this done. \xa0 5 - Fifth on the list of actions to address the so-called climate change housing bubble is a revamping of FEMA and the creation of a National Disaster Safety Board. The report says that FEMA is \u201cunderfunded, understaffed, and has minimal authority to do what it needs to do.\u201d A National Disaster Safety Board could help implement policy changes. \xa0 6 - Last but not least, the report suggests that we should work toward a retreat policy that would help people move from areas that have suffered multiple climate-related disasters. The strategy would be to provide affordable housing for these people which may sound like a \u201cbig ask\u201d at a time when the nation is suffering from a huge lack of affordable housing. \xa0 When Will the Bubble Burst? \xa0 So when will all this become critical? \xa0 The Yale article cites a NOAA prediction, that the average sea level rise by 2050 will be 10 to 14 inches for the East Coast, 14 to 18 inches for the Gulf Coast, and four to eight inches for the West Coast. It says a \u201crapid rise\u201d will happen after that and claims that we\u2019ll see a rise of four to seven feet by 2100 as compared to the year 2000. \xa0 The study can\u2019t predict when we might see a sudden disruption because so much depends on politics, the economy, and basic human behavior. It says we might see a period of increased risk in the mid-2030s because of a \u201cwobble in the moon\u2019s orbit.\u201d It\u2019s something that happens every 18.6 years and usually causes unusually high tides along the Southern and Western coastlines. \xa0 If you own property in a high risk area, this topic is something that may command more of your attention. And if you\u2019re looking to buy a new property, be sure to check on the climate risks and factor that into your decision. As I mentioned, Redfin and Realtor.com both provide environmental risk factors on their property listing pages. You can also find more detailed information at floodfactor.com. \xa0 If you want to read more about this study, you\u2019ll find a link to the Yale article at newsforinvestors.com. You can also join RealWealth for free if you\u2019d like more information on how to navigate the housing market right now and find rental property that makes sense for your portfolio. And please remember to subscribe to the podcast and leave us a review! \xa0 Thank you! And thanks for listening, Kathy \xa0 Links: \xa0 1 - https://yaleclimateconnections.org/2023/04/bubble-trouble-climate-change-is-creating-a-huge-and-growing-u-s-real-estate-bubble/