If rising seas cause America’s coastal housing market to dive — or, as many economists warn, when — the beginning might look a little like what’s happening in the tiny town of Bal Harbour, a glittering community on the northernmost tip of Miami Beach.
With single-family homes selling for an average of $3.6 million, Bal Harbour epitomizes high-end Florida waterfront property. But around 2013, something started to change: The annual number of homes sales began to drop — tumbling by half by 2018 — a sign that fewer people wanted to buy.
Prices eventually followed, falling 7.6 percent from 2016 to 2020, according to data from Zillow, the real estate data company.
All across Florida’s low-lying areas, it’s a similar story, according to research published Monday. The authors argue that not only is climate change eroding one of the most vibrant real estate markets in the country, it has quietly been doing so for nearly a decade.
“The downturn started in 2013, and no one noticed,” said Benjamin Keys, the paper’s lead author and a professor of real estate and finance at the University of Pennsylvania’s Wharton School. “It means that coastal housing is in more distress than we thought.”
The researchers identified a decline in sales in low-lying coastal areas beginning in 2013, followed a few years later by a drop in prices compared with safer areas. On less vulnerable land, sales and prices continued to grow.
The idea that climate change will eventually ruin the value of coastal homes is neither new nor particularly controversial. In 2016, the then-chief economist for the federal mortgage giant Freddie Mac warned that rising seas “appear likely to destroy billions of dollars in property and to displace millions of people.” By 2045, more than 300,000 existing coastal homes will be at risk of flooding regularly, the Union of Concerned Scientists concluded in 2018.
The question that has occupied researchers is how soon, and how quickly, people will respond to that risk by demanding price discounts or fleeing the market. Previous research has begun to tackle that question, showing that climate change, far from being a distant threat, is already starting to hurt real estate values.
The paper released Monday by the National Bureau of Economic Research takes a different approach; it focuses not on price declines, but instead tries to detect an earlier signal of trouble, a decline in the number of houses changing hands.
Falling sales have been a reliable predictor of price drops in previous housing crashes. A drop in home values follow a common pattern. First, prospective buyers become reluctant to pay the price that sellers are asking. But sellers, not wanting to take a loss, often hold out for months or even years, before grudgingly starting to accept lower bids.
Dr. Keys, along with his co-author Philip Mulder, a doctoral student at Wharton, wondered if the same pattern could predict a climate-induced housing crash.
To find out, the pair looked at Florida, with more miles of low-lying coastal land than any other state. Examining data for 1.4 million home sales over 20 years, they compared two types of coastal census tracts: Those on the most exposed land, where more than 70 percent of developed land is less than six feet above sea level, and also in higher areas, where less than 10 percent of developed land meets that criteria.
For most of that time, home sales in both areas rose in lock step, suggesting that buyers weren’t particularly concerned about climate risk.
Then, starting in 2013, something started to change. While sales in safer areas kept climbing, sales in vulnerable ones began to fall. By 2018, the last year for which Dr. Keys and Mr. Mulder obtained data, sales in vulnerable areas trailed safer areas by 16 percent to 20 percent.
A few things happened around that time that might have made prospective home buyers more worried about climate risk, Dr. Keys said. An international report the previous year highlighted the risks of extreme weather events. After that report came out, Google searches in Florida for “sea level rise” spiked.
And people from the Northeast, who account for a significant portion of Florida home buyers, had just lived through Hurricane Sandy, which damaged some 650,000 homes and caused 8.5 million people to lose power, some for months.
“After Sandy, all of a sudden, flood risk becomes a very salient thing” for those buyers, Dr. Keys said.
To check whether that drop in demand predicted a decline in prices, Dr. Keys and Mr. Mulder looked at a second set of data, from Zillow. They found that, since 2018, prices in high-risk markets have started to fall too, dropping by about 5 percent by 2020 compared with less vulnerable coastal census tracts.
The large and growing gap in sales volume between safer and riskier areas, Dr. Keys said, suggests that the gap in prices over the past two years isn’t just the normal boom-and-bust cycle of Florida real estate, but part of a longer trend, with prices likely to follow demand downward in risky areas. “It tells us how fast this reality is approaching,” he said.
Housing experts who weren’t involved in the new paper, when told of its conclusions, said that using sales volume to predict a change in prices was sound.
“The finding makes a lot of sense,” Tingyu Zhou, an assistant professor of real estate at Florida State University, said by email. Asked what she thought explained the declining demand in high-risk areas, she agreed with the authors: “I think the fundamental reason is the increase of home buyers’ awareness of the risk.”
The market decline detected by Dr. Keys and Mr. Mulder appeared to be furthest along in the cycle in Miami-Dade County. There, prices in the most exposed towns aren’t just growing more slowly than in safer areas, they’re already falling.
In Key Biscayne, an island 20 minutes southeast of Miami where the average elevation is 3.4 feet above sea level, sales volume in 2018 was one-third below its 2012 peak, and the parts of the island most exposed to rising seas saw the greatest drop. In the town of Sunny Isles Beach, in the northeast corner of the county, one particularly low-lying census tract saw sales volume fall by two-thirds.
Since 2016, prices have fallen by 13 percent in Key Biscayne, and 9 percent in Sunny Isles Beach.
The mayors of each city took issue with the paper’s findings. Some argued that the recent declines are part of the natural cycle of Florida real estate and that the market has shown signs of recovery in the past few months.
George “Bud” Scholl, the mayor of Sunny Isles Beach, said he didn’t think climate concerns explained the drop in sales volume, which he attributed to families that have lived in the town for a long time and were “simply holding onto their properties.”
Gabriel Groisman, the mayor of Bal Harbour, said the downturn in his city was caused by tighter federal rules that made it harder for wealthy foreign buyers to move money into the United States, as well as an uptick in new condominiums that pushed down prices. Climate change wasn’t the problem, he said, at least not in his town.
“I don’t see that being a consideration,” he said.
On Key Biscayne, Mayor Michael Davey said his city is addressing those concerns, seeking to elevate roads, protect beaches and bury power lines to avoid wind damage and power cuts as storms worsen. “We’re protecting our property value by doing these projects,” Mr. Davey said. “I don’t think the sky is falling.”
Real estate agents were equally skeptical. Oren Alexander, a broker at Douglas Elliman Real Estate who sells what he called “trophy properties” around Miami, said every part of the country faces climate threats.
“Hurricanes have reached New York City. California is burning,” Mr. Alexander said. “I’ll tell you firsthand from working with buyers, are they concerned with sea level rise? No.”
Because the housing market around Miami can seem to occupy a separate universe from the rest of the country, Dr. Keys and Mr. Mulder ran the numbers a second time, this time excluding Miami-Dade County. They found the trend held for the rest of the state.
One of the most exposed waterfront census tracts in Hallandale Beach, a town in Broward County, saw a 39 percent drop in sales between 2013 and 2018, while a nearby area fell 22 percent. Home prices seem to be following: Values increased every year since 2011, after the last housing crash, then dipped slightly for the first time this year.
The trend was similar in parts of the Florida Keys, including the northern portion of Key West and part of the city of Marathon. On the other side of Florida, a handful of coastal tracts in Collier County, including parts of Marco Island south of Naples, have shown the same one-two pattern of falling sales volume followed by a small dip in prices.
Mayor Heather Carruthers of Monroe County, which encompasses the Keys, said the county’s resilience efforts remain “a top priority.” Officials in Collier County declined to comment.
The mayor of Hallandale Beach, Joy Cooper, acknowledged the pressure that climate change is putting on property values, but said coastal cities like hers can engineer their way out of the problem, protecting homeowners from worsening storms and floods. “We’ve been managing water for years,” she said. “So we know it can be done.”
The data tell a less optimistic story, Dr. Keys said: “The market already perceives that these substantial infrastructure projects won’t be successful.”