A powerful El Niño brewing in the Pacific could reshape housing market conditions across the U.S. this winter — exposing vulnerabilities in homes and testing the resolve of real estate agents, insurers, appraisers and buyers from California to the Gulf Coast.
Howard Botts, chief scientist at Cotality, told HousingWire the coming pattern will not create risk so much as reveal it — and that even homes spared from direct damage may see their marketability and values tested.
“We see El Niño events every two or three to seven years, so it’s not unprecedented that we see these,” Botts said. “But with sea level temperatures at record elevations, all the predictions are for a super El Niño event. We may remain really hyper focused on the West Coast, particularly California, because historically, El Niños shift the wind pattern south.
“That means we have the jet stream flowing over the southern part of the U.S. and that typically means, for California, a significant increase in the atmospheric rivers coming off the Pacific.”
Botts speaks from personal experience. He lives in the Pacific Palisades, below the Palisades wildfire burn scar, where storm preparations have become routine.
“What I see happening all around me is, literally several times a week, before the storm events they have around here, people taking about preparation for mud flows,” he said.
Coastal flooding is another concern, especially with two recent Pacific hurricanes accelerating coastal erosion in Orange County and Los Angeles County. “As the water warms, it expands,” he said. “So, sea level is higher up the coast at the moment, maybe as much as six inches or more,” he said. “If you combine that with storm waves, king tides and full moons, you’re going to have a lot of coastal flooding.”
In the Southeast, El Niño has suppressed hurricane activity this summer, but Botts said not to consider that a long-term severe weather reprieve.
“The shift in the jet stream will probably bring cooler, wetter conditions to the Southeast and Gulf Coast as we move into late fall and winter,” he said. “But we’ll see more severe convective storms — probably more tornado activity.”
The Pacific Northwest, by contrast, will probably be drier, raising wildfire risk by late spring and summer. Drier conditions across the northern tier of states carry agricultural implications as well, Botts added.
Insurance as the canary in the coal mine
For Botts, insurance markets offer an early warning signal.
“Insurance is another area that we’re very concerned about here at Cotality, and in some ways, it’s sort of the canary in the coal mine,” he said. “You see, insurance rates going up or insurance becoming difficult to get is kind of an early indicator of at least what the risk market is concerned about for homes.”
Cotality also watches transaction cancellations — often a sign that a home failed inspection or appraisal, or that a buyer could not secure hazard insurance.
A common and dangerous misconception, Botts said, is that homeowners outside a mandatory special flood hazard area — the so-called 100-year flood zone — are covered for flood damage.
“We’ll see the events occurring from El Niño that will be largely flash flooding or pluvial flooding, as it’s known,” he said. “An intense rainfall event causes large amounts of water to appear quickly, and typically, special flood hazard areas don’t cover these kinds of events very well. They tend to be more focused on river flooding.
“I live in a canyon near the coast but elevated above the free-flowing creek. I’ve seen neighbors all start to purchase flood insurance. Part of that is just general fear caused by the unknown of what this year means. But the other thing is we’ve had massive fires, so you’re likely to get mud flows from these intense rainfall events, too. Last year, we saw in a nearby canyon, a five-foot wall of mud moving down and filling up a number of homes and businesses.”
For buyers and agents, Botts recommended examining individual structures rather than relying on broader regional projections.
“If you’re an agent representing a buyer, you definitely have to look at the individual structure,” he said. “Does it have negative grading? You want to make sure that the ground slopes away from a foundation. I think anybody looking to buy a home or an agent should definitely utilize comprehensive property risk reports.”
Appraisers see values pressured, even without direct damage
Michael Romano — vice president of staff appraisers for valuation at ServiceLink — further stressed the point that a wet or stormy season can affect a property’s value even when the property itself escapes damage.
“The fact that a property doesn’t sustain direct damage doesn’t necessarily mean there wouldn’t be factors that negatively influence buyers,” he said. “The same holds true for neighboring properties or those in the community. Marketing times may be extended, asking prices may drop and/or the seller may be more likely to offer incentives, all of which can diminish values.
“Just like favorable weather can positively affect home sales by encouraging market activity, bad weather can negatively impact the number of home sales and prices.”
External factors can also weigh on value. As buyers become better informed, Romano said, they may be less inclined to purchase in affected areas.
“Reduced buyer demand will likely lead to increased supply and that typically places downward pressure on prices,” he said. “If external factors result in higher insurance premium, taxes and/or community maintenance fees, you will likely see prices decline along with value.”
Appraisers can measure that trend over time, he said, by comparing market conditions before, during and after a natural disaster — or when external factors first appear to affect marketability.
Insurance problems become valuation problems
Romano said appraisers do not directly compare one home’s insurance cost to another’s because too many factors affect rates and appraisers cannot know all that applies.
But the market adjusts regardless.
“The market will adjust, for better or worse, as buyers might be less willing to purchase due to the higher rates of insurance, taxes and/or utilities,” Romano said. “The actions of buyers and sellers, or the market reaction, is what appraisers analyze in determining value.”
Asked whether buyers are already discounting properties with higher climate or insurance risk, Romano said appraisal methodology focuses on market data and trends rather than climate or insurance risks.
“Those factors aren’t specifically addressed during the valuation process at a subject property level but do show up in aggregated data outside of the development of the appraisal itself,” he said.
On the ground in Miami
While the industry braces for El Niño’s impact on the West Coast and Gulf Coast, Alfredo Pujol, chairman of Miami Realtors + RWorld, said the weather pattern has barely surfaced in conversations with buyers and sellers in South Florida.
“What has come up,” he said, “and one of the things that we’re seeing, is the continued cash buyers, and where the conversations are focusing is on financing — if the rates are remaining high.”
Pujol said Miami is on track to break an annual 10 million-plus home sales record. “If El Niño affects California, those residents are going to be moving to Florida,” he said. “I’d say that continued migration is going to happen from California and from those states as they face issues.”
Pujol pointed to Florida’s efforts to strengthen both homes and insurance markets.
The state’s My Safe Florida Home program has helped homeowners install impact windows and complete repairs — while regulators reported a slight decline in insurance rates for homeowners.
“Programs like that that have come into our state for a lot of the homes,” Pujol said. “They are helping those sellers and are also helping the buyers have a better peace of mind.”
For agents fielding questions from out-of-state buyers worried about climate risk, Pujol said the answer lies construction standards and preparation.
“Building codes were changed after Hurricane Andrew and the homes have been stronger,” he said. “We’ve been working through Miami and RWorld and Florida Realtors to speak with elected officials and work towards the insurance side. If you take the right precautions or the house has the impact glass, or the shutters, you’re going to be in a lot different position.”
Pujol acknowledged that severe weather events and climate change are a reality Florida must contend with, but further emphasized that new construction is being brought up to code and reinforced.
“It’s just about making sure that the client understands the area, the type of repairs needed for the property and that these insurance programs that are available,” he said.
General outlook
Looking ahead, Botts summed up a map of possible nationwide impacts.
That includes atmospheric rivers, flooding and landslides in California; flooding and severe storms along the Gulf Coast, Texas and Florida’s coastal plains; coastal storms and nor’easters in the Northeast and New England; drought and wildfire risk in the Pacific Northwest; and winter flooding with mixed precipitation in the Midwest and Great Lakes.
“Each area of the country will have something to be concerned about, but certainly the majority impact will be on California, the Gulf Coast — along the whole southern tier of states,” he said.
His core message to industry colleagues remains simple, and one he said is repeated to neighbors.
“A strong El Niño doesn’t create the risk so much as expose it,” Botts said. “Really try to understand individual vulnerabilities that a home may have.”
