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

67 Pages Posted: 18 Aug 2021

See all articles by Benjamin J. Keys

Benjamin J. Keys

The Wharton School - University of Pennsylvania, Real Estate Department

Philip Mulder

University of Wisconsin - Madison

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 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 1, 2020). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper , Available at SSRN: https://ssrn.com/abstract=3906066 or http://dx.doi.org/10.2139/ssrn.3906066

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 Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

HOME PAGE: http://https://sites.google.com/view/philipmulder/home

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