CBO Says Mortgage Subsidy Cost from Flood Damage to Hit $395M by 2053

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Climate change is expected to increase the frequency and severity of floods in the U.S., posing greater risks to homeowners and mortgage lenders鈥攁nd since flood damage tends to lower the market value of affected homes, it’s more likely that homeowners will default, especially if that damage is not covered by insurance.

Those are among the assertions in a new working paper from the Congressional Budget Office.

The paper out this week, “,” uses data on mortgages and expected flood damage for residential properties to examine how much flood damage is expected to increase the cost of

federally backed mortgages and it uses those estimates to determine the budgetary effects of mortgages guaranteed directly by the federal government and through Fannie Mae and Freddie Mac.

The paper focuses on the effects on those entities, but it offers a good look at the scale of impact that climate change and flooding can have on properties. Flooding risk is a growing concern for the government, so much so that the U.S. Federal Emergency Management Agency recently finalized a rule mandating that projects built using its funds must for the first time consider the future risk of flooding, which is being exacerbated by climate change.

The CBO estimates that the subsidy cost from flood damage is $275 million in fiscal year 2024. The authors of the working paper now estimate the cost will increase to $395 million under climate conditions projected for 2053 based on an intermediate climate change scenario.

Cost of Insurance

While climate change makes extreme weather more likely, the cost of home insurance doesn’t line up with the risk, according to .

The article found that homeowners with similar levels of exposure to perils like wildfires and storms pay broadly varying rates depending on their location.

For example, the article compares McCurtain County, Oklahoma, where a typical homeowner paid an average of $2,837 for insurance in 2023, with Little River County, Arkansas (the same area with the same weather), where the average homeowner paid $1,673 last year.

“Families with the same level of risk exposure pay wildly different amounts to protect themselves from harm,” Benjamin Keys of the Wharton School of the University of Pennsylvania, an academic who studied the disparities along with Philip Mulder at the University of Wisconsin, told the NYT. “Different prices for the same risk feels unfair.”

The article notes that as climate change worsens, more homes are at risk from disasters, and without adequate home insurance, most people have no way to pay for rebuilding. That makes the cost of home insurance a climate story, as well as an economic story, and a social justice story, according to the article.

Record Heat

A year-plus streak of record-breaking hot months continued through June.

The global temperature in June was record warm for the 13th straight month, the 12th consecutive month that the world was 2.7 degrees warmer than pre-industrial times, the European climate service Copernicus announced.

The world is edging closer to the 1.5-degree temperature warming limit that the nations of the world agreed to in the 2015 Paris climate agreement, scientists warned.

“It’s a stark warning that we are getting closer to this very important limit set by the Paris Agreement,” Copernicus senior climate scientist Nicolas Julien told the Associated Press for an article on Insurance Journal this week. “The global temperature continues to increase. It has at a rapid pace.”

The Earth in June averaged 62 degrees Fahrenheit, 1.2 degrees above the 30-year average for the month, according to Copernicus. It broke the record for hottest June last year and is the third hottest of any month recorded, the AP article notes.

Beryl Mockery

Texas’ highly “aggressive pro-global-warming policies have real teeth and will continue to do real harm,” writes Bloomberg opinion columnist Mark Gongloff.

“” reads the headline for the article, which notes that no other state has dealt with more climate-related damage over the past several decades鈥攖opping other weather- and wildfire-volatile states like Florida, California and Louisiana.

Gongloff also cites that shows homeowners insurance costs rose more in Texas than any other state.

Hurricane Beryl won’t do much to ease rate pressure in Texas. Days after the storm struck the state, hard-hit Houston was still grappling with the aftermath, as large swaths of the city remained without power, shutting stores and snarling traffic.

Catastrophe modeler Karen Clark & Co. said on Thursday that insurers in the U.S. may take a hit of about . AccuWeather said this week that from the hurricane is expected to be between $28 billion and $32 billion.

While other government leaders are looking for solutions to deal with extreme weather from climate change, “Texas’ leaders have dedicated most of their energy to not only denying the reality of climate change but fighting efforts to address it,” including passing laws to keep state money out of investment funds that they claim “boycott” fossil fuels, Gongloff writes.

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