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

67 Pages Posted: 14 Oct 2020 Last revised: 26 Oct 2022

See all articles by Benjamin J. Keys

Benjamin J. Keys

The Wharton School - University of Pennsylvania, Real Estate Department

Philip Mulder

University of Pennsylvania - Wharton Risk Management and Decision Processes Center; University of Pennsylvania - Business & Public Policy Department

Multiple version iconThere are 2 versions of this paper

Date Written: October 2020

Abstract

In this paper, we explore dynamic changes in the capitalization of sea level rise (SLR) risk in housing and mortgage markets. Our 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 we show that both all-cash and mortgage-financed purchases have similarly contracted, with little evidence of increases in loan denial or securitization. We propose a demand-side explanation for our findings where 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.

Suggested Citation

Keys, Benjamin J. and Mulder, Philip, Neglected No More: Housing Markets, Mortgage Lending, and Sea Level Rise (October 2020). NBER Working Paper No. w27930, Available at SSRN: https://ssrn.com/abstract=3709620

Benjamin J. Keys (Contact Author)

The Wharton School - University of Pennsylvania, Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

Philip Mulder

University of Pennsylvania - Wharton Risk Management and Decision Processes Center ( email )

3819 Chestnut Street
Suite 130
Philadelphia, PA 19104
United States

University of Pennsylvania - Business & Public Policy Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6372
United States

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