Climate change risks and the effects of overvaluation of housing in the US market.

Climate change poses a number of financial and economic risks to households, communities, and market sectors in the United States. These risks are driven not only by the physical impacts of climate change, but also by the response of property owners, private businesses, and public institutions to increasing climate threats. The response to climate change will determine not only the magnitude of the overall costs, but also whether those costs will ultimately be borne by local taxpayers or those directly exposed to the physical effects of climate change.

Of the natural threats exacerbated by climate change, flooding is the deadliest, most costly, and most widely''common in the United States.

More than 14.6 million properties in the United States currently face at least a 1% annual chance of flooding, with average annual flood losses exceeding $32 billion. With climate change increasing the frequency and intensity of flooding, the number of properties exposed to flooding is projected to increase by 11% and annual losses are projected to increase by at least 26% by 2050.

The increasing burden of flooding in the face of climate change has led to growing concern that housing markets are getting it wrong''appreciate these risks, leading to a real estate bubble.

Recent research shows that properties in the 100-year flood zone can be revalued by an average of 8.5% of current value, not accounting for increased damage from climate change. Underestimating flood risk may support the wrong incentives for continued development in low-lying areas and underinvestment in hazard mitigation measures, further increasing the real estate bubble. Despite these concerns, the magnitude, distribution, and potential socioeconomic impacts of residential overvaluation in U.S. real estate markets remain uncertain.