Extreme weather and homeownership: Are you financially prepared?

Real estate has been on a roller-coaster ride over the past few years. But in the midst of high mortgage rates, skyrocketing home prices and low housing supply, less attention has been paid to the real housing-market forecast — as in, the literal weather. For homeowners, hurricanes, wildfires, tornadoes and floods can turn a dream home into a nightmare financial scenario.

Bankrate’s 2024 Severe Weather Survey shows that storm clouds are gathering for plenty of homeowners. When asked to describe their level of financial preparedness for the potential costs associated with extreme weather in their area, more than 1 in 4 U.S. homeowners (26 percent) said they felt unprepared — and 12 percent said they felt very unprepared.

Read on to learn more about how extreme weather and climate-related disasters impact housing, and what you can do to be ready if it happens to you.

Extreme weather data and statistics

Bad weather is creating big problems across the country. In 2023, there were 28 disasters with damages that each exceeded $1 billion in the U.S., according to data from the National Oceanic and Atmospheric Administration’s Climate.gov website.

However, it’s not just headline-making catastrophes: More everyday problems, like hail and wind, are also reaching new heights. “The secondary perils are increasingly contributing to annual insured losses, to a degree that is actually outpacing primarily perils [like hurricanes and earthquakes],” says Karen Collins, vice president, property and environmental at the American Property Casualty Insurance Association.

Here’s a look at what homeowners are doing to gear up for extreme-weather challenges:

Rising real estate prices

If you’re looking to buy a home, you’ve probably crunched the numbers on how much you can afford to spend. Your budget will get you different kinds of properties depending on where you’re hoping to call home, and surprisingly, real estate prices — which continue to set record highs — have stayed resilient even in areas where extreme weather is a common concern.

Consider Fort Lauderdale, where 25 inches of rain fell in the city in less than 24 hours in April 2023, causing widespread flooding and damage. That disaster didn’t dampen homebuyer interest: According to recent Redfin data, median home prices in Fort Lauderdale have actually increased by 8 percent since last year.

What’s happening in the states that are best prepared for climate change, then? Despite their climate-resistance, they simply don’t hold the same appeal as sunshine and beaches do. In Wyoming, for example, the median price since last year is down 4.8 percent.

Regardless of home prices, extreme weather makes homeownership far more expensive in another way: maintaining and insuring your property. Some disaster-prone states, like Florida and California, have even seen big-name insurance companies withdraw from the market due to rising costs, which makes home affordability that much more challenging. Insurance woes aren’t confined to coastal areas, either. In Iowa, for example, severe storms have fueled losses for insurance companies in recent years.

Extreme weather challenges and costs

Rising real estate prices may be keeping prospective homebuyers up at night, but Loretta Worters, vice president of media relations at the Insurance Information Institute, says that for those who already own their homes, the potential for rising floodwaters should be a priority.

“These storms don’t all make it to the headlines, but flooding is the most frequent and expensive natural disaster in the United States,” says Worters. “Flooding can happen anywhere and can be caused by many things, including severe weather, snowmelt, dams or levees breaking and new land developments.”

According to FEMA, a single inch of floodwater can cause around $25,000 worth of damage. But despite that kind of financial headache, Worters says that only 6 percent of people across the country have flood insurance. “There are major challenges in convincing people of the need for flood insurance,” says Worters. “Many continue to be under the misconception that flood insurance is covered under a standard homeowners or business owners insurance policy.”

Regardless of where a home is located, Redfin chief economist Daryl Fairweather recommends being ready to shell out for upgrades based on climate changes. “Homes are going to have to be retrofitted to deal with these new weather patterns,” she says. “No matter where you live, there are costs big and small that you’ll have to invest in your home to adapt to the new climate patterns.” For example, she says, many residents of her home state of Wisconsin never used to have air conditioning, but need it now to be comfortable, and she has had to invest in an air filter due to lingering smoke from Canadian wildfires.

Impact on financing and property values

Extreme weather can have a serious impact on a home’s value, which in turn can affect a buyer’s ability to get a mortgage — or an owner’s ability to refinance or tap into their equity.

CoreLogic’s Flood Risk Score research illustrates how an increase in flood risk translates to a decrease in property value. According to its data, in Miami-Dade County, Florida, every 10-point increase in score equates to about 1 percent less in a home’s sale price; in Harris County, Texas (home of Houston), a 10-point score increase would mean the home would sell for 2.7 percent less.

How homeowners can prepare for extreme weather

There are ways to protect your home, and your finances, from weather-related risks. Here are a few strategies that can help.

• Work on disaster preparedness: Collins recommends exploring ways to strengthen your property against the biggest risks in your region. In coastal areas, she highlights a program from the Insurance Institute for Business and Home Safety called Fortified, which involves enhancements that go “above building code standards to provide additional protection from severe weather.” The organization also has a wildfire preparedness program.
• Invest in energy-efficient upgrades: In areas where extreme heat is a problem, a power outage that takes the air conditioning out can lead to dangerous conditions quickly. Installing solar panels and other energy-efficient options can help keep both you and your home safer.
• Budget for the “new normal”: You can’t change the weather, but you can change your budgeting strategy to plan for the higher home costs it might bring. “Whether you need to install air conditioning, a dehumidifier or whatever it may be, it’s going to cost more to adapt to climate change,” says Fairweather.
• Explore your insurance options: As insurance costs rise, look for ways to reduce your out-of-pocket expenses, such as bundling homeowners insurance with auto and life coverage. Additionally, you might consider increasing your deductible. While you’ll need to pay more if a disaster occurs, you will be able to save money on a monthly basis.