Expected weather losses reduce Florida home values by 0.5 percent
A Federal Reserve Board research paper finds that Florida residential real estate prices rationally incorporate ex ante weather risk, with higher expected storm losses lowering property valuations at an implied discount rate of about 2.1 percent.
The price of projected wind damage
Researchers Erik Heitfield, Mallick Hossain, and Katie Merritt analyzed 465,203 single-family home transactions in Florida from April 2012 to December 2024 using semiparametric double-debiased machine learning.
The model isolates the effect of property-level expected annual weather losses from catastrophe risk models while controlling for coastal proximity, square footage, and buyer credit quality.
The findings show that a 10 percent increase in projected non-flood weather losses reduces property transaction values by approximately 0.5 percent.
This elasticity implies an annualized real discount rate on future wind damage of roughly 1.7 to 2.1 percent, matching risk-free benchmarks.
Transitory premiums and familiar storms
In contrast to physical risk projections, annual insurance premiums display a much smaller price elasticity of negative 0.016. A permanent 150-dollar premium increase lowers a 300,000-dollar home’s value by only 480 dollars, yielding an implausibly high 31 percent discount rate.
The authors attribute this gap to buyers viewing premium spikes as transitory insurer cost adjustments.
Furthermore, recent hurricane strikes create only minor price discounts of about 3 percent that fade quickly.
Rational pricing with regional limits
The paper proves that buyers price structural storm risk rather than volatile premiums.
However, Florida’s high awareness and strict building codes make these findings hard to generalize.
In less sensitized markets, climate risks remain dangerously uncapitalized in property values.
Source: FEDS Paper: Premiums or Peril
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