Is Climate Change Hurting Real Estate in the West?

The American West is a hot and increasingly dry place — afflicted by drought, wildfires, and a declining Colorado River basin that is struggling to meet the demands of the millions of thirsty people who live in the region.

Also: It’s not a great time to sell a house there.

The Wall Street Journalreports that in America’s 12 major housing markets west of Texas — places like Salt Lake City, Las Vegas, and Seattle, and every place in between — home prices were lower in January than a year before. That’s a sharp contrast to housing prices just about everywhere else in the country, where they’re going up.

What’s going on? WSJ cites the end of the tech boom. Companies like Facebook, Amazon, and Google have laid off thousands of workers this year, hitting cities like San Francisco and San Jose, California exceptionally hard: Both cities saw 10-percent-plus drops in home prices. Climate was mentioned nowhere in the Journal’s story.

If you’ve been paying attention to the climate crisis in America, though, you might notice something interesting about the newspaper’s map showing the major cities where home prices are falling: It doesn’t look terribly different from the U.S. Drought Monitor map showing that much of the country west of the Mississippi River is laboring under the effects of a long-running drought — a drought that, at the very least, has been exacerbated greatly by the effects of climate change.

So that’s correlation. Is there causation?

Or to put it another way: Is climate change denting home prices in places like Washington, Oregon, and California? And if not now, what might a warming West mean for home prices in the future? The West is already hot and dry. Will people want to buy houses there if it becomes hotter and dryer?

The answer, as with many things climate-related: It’s complicated.

“What's really driving this now is just everything got, I think, too overheated during COVID and prices are just sort of coming back to what should have been their equilibrium,” says UNLV’s Nicholas Irwin, an expert on urban and environmental issues. (He means the market was “overheated,” not the environment.) But he allows that worries about current and future heat waves and droughts could be one factor — among many — that influence the interplay between buyers and sellers when a home is changing hands. “All that is kind of embedded in that bidding process that homebuyers make when they decide to buy a house.”

What seems clear is that Western homeowners are challenged by the warming environment. A lot of media attention about climate change and real estate has focused on coastal properties, where communities struggle with protecting — or even moving — beachfront properties that find themselves in the path of rising oceans. One recent study found that American homes are overvalued by as much as $237 billion due to unacknowledged flood risks due to climate factors.

But the drought is also taking its toll on current and prospective homeowners who live a long way from the oceans and rivers.

The 2020 California wildfires destroyed more than 11,000 structures in the state, turning residents into de facto climate refugees and putting renewed strains on the Golden State’s insurance industry. In places like Arizona, drought and climate change are putting pressure on builders who are having difficulty finding enough water to supply the giant new housing developments they want to put up in the desert.

And that struggle is pitting neighboring communities against each other: In January, the city of Scottsdale, Arizona shut off water sales to homes in the unincorporated community of Rio Verde Foothills, leaving residents there to eat off paper plates and use rainwater to flush their toilets. (They sued Scottsdale.) As long as that situation persists, those homes will be difficult to sell for anything like the investment the current owners put into them.

These developments have gotten the notice of the real estate industry. A 2013 study estimated that a decline in Colorado River flows could cut riverfront real estate prices by nearly 10 percent in coming decades. In October, a survey by the Redfin real estate brokerage found that 62 percent of Americans who plan to buy or sell a home — and nearly three-quarters of Gen Z respondents — were reluctant to move to places with rising temperatures and encroaching sea levels.

The industry’s responses, though, have been uneven. The Sierra Club in March pointed out that “some real estate companies like Redfin and Realtor.com offer information about a property's climate-related disaster risk; others, like Zillow, don't.”

Despite the recent home price drop, there is evidence that Americans are still eager to move to the West — even when the climate risks are plain.

In 2021, for example, the “Marshall fire” in Boulder County, Colorado, killed two people and destroyed nearly 1,000 homes and businesses. But "the fact that hundreds of homes burned down hasn't reduced demand,” says Ethan Shapiro, founder of Boulder’s Climate Change Realty. (The company directs half its commissions to the environmental cause of the client’s choice.) While there’s “flickering” awareness of a threat, he says, "I haven't spoken to anybody who is spooked to the point they wouldn’t want to live in Boulder."

The West is complicated because it has an unusually volatile real estate landscape to begin with, says Susan Wachter, a professor of real estate and finance at the University of Pennsylvania’s Wharton School of Business. “A large share of land in the West is actually outside of development due to national parks, tribal lands, et cetera,” she says. In good times, Western housing prices go up faster than the rest of the country. In the bad times — right now — they go down much faster, too.

Climate change is just one more factor affecting that volatility.

While it’s hard to estimate just how big a factor it is right now, says UNLV’s Irwin, it may become more apparent in the near future as homeowners start to understand the risks of wildfires — and as mortgage lenders get skittish about making loans for houses that have a tough time getting insurance for such disasters.

“You could buy a house in cash if you want, but you wouldn't be able to get a mortgage in an area without homeowners insurance and then that's going to shift some people away,” he says. “And maybe that's probably a good thing if we get fewer people living in these areas, because it's very expensive to fight wildfires.”

If you’re a homeseller, though, that might not be so good. For the real estate industry in the West, climate change just might end up having a cooling effect.

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