When Sara McKinley, 67, first caught a glimpse of her vacation home where she was planning to retire on Sanibel Island in Florida in the aftermath of Hurricane Ian, she was overcome with sadness, witnessing the scale of devastation. She presently lives in her primary home in Lakeland, Fla.
“The first few times I went down and as soon as I began to see the devastation, I burst into tears,” McKinley, a pastor who works as the director of clergy excellence at the Florida Conference of the United Methodist Church, told MarketWatch. “It was so traumatic to see the destruction.”
But warnings about the effect of climate change increasing sea levels and leading to more storms and hurricanes — such as Hurricane Ian in September 2022 — and cautionary tales about the real cost of rebuilding and repairing damaged homes have not deterred homebuyers.
“Researchers suggest that the most damaging U.S. hurricanes are three times more frequent than 100 years ago, and that the proportion of major hurricanes (Category 3 or above) in the Atlantic Ocean has doubled since 1980,” according to the Environmental Defense Fund, a nonprofit environmental advocacy group.
“The number of people who are moving into flood-prone zones rather than moving away from them, between 2021 and 2022, increased by 384,000, up more than 100% on the previous year.”
The number of people who are moving into flood-prone zones rather than moving away from them, between 2021 and 2022, increased by 384,000, up more than 100% on the previous year, according to real-estate brokerage Redfin.
The No. 1 flood-prone spot where people are moving? Lee County, Fla., which encompasses Fort Myers and Cape Coral, where Sanibel Island is located. Nearly 60,000 more people moved into Lee County than moved out. These areas were destroyed by Hurricane Ian last fall.
“Florida is still the top migration destination. People are moving there for the warm weather, the lifestyle, and affordability,” Daryl Fairweather, chief economist at real-estate brokerage Redfin
But these are short-term considerations, she stressed. People moving to the Sunshine State “think of climate change as something in the very distant future,” Fairweather said.
Though these disasters appear to happen infrequently, despite research suggesting U.S. coasts are even more at risk from storms, new residents “may not be aware of how costly it is psychologically as well as in terms of the dollar amount rebuilding the home, and the trauma,” she added.
The complicated web of insurance in Florida
Hurricane Ian’s storm surge had flooded and destroyed numerous homes on Florida’s west coast last September. Many residents had lost their homes, and faced an uphill task trying to get their insurance company to cover the cost of rebuilding.
The duplex McKinley initially bought as a vacation home in 1998 for $150,000 suffered heavy damage. It was part of a very small condo association that includes five buildings and eight units.
McKinley said that — despite the fact that she has spent approximately $1,000 per year on wind insurance, and $3,000 on flood insurance for the last three decades — the insurance companies still came up short for the total costs needed to repair and rebuild the home. Thus far, she has had to spend $30,000 out of pocket.
“Insurance is an absolute joke — it’s not worth the paper it’s written on,” McKinley said. Her personal wind insurance policy didn’t pay anything, she said, and her personal flood-insurance policy only paid for about half of the cost of replacing her personal belongings, but nothing for the interior building costs.
However, her condo’s insurance helped tremendously to cover some of the interior building costs and the roof, she added.
But what McKinley describes is actually a “good outcome,” Trevor Burgess, president and CEO of Neptune Flood Insurance, told MarketWatch. “The condo paid for everything up to the sheetrock to repair it, and then the personal items inside are covered by the flood policy.”
“There are a lot of bad outcomes out there when people think the condo has a policy so I don’t need to buy anything on my own,” Burgess explained. “Then they’re left with all their personal property with no coverage. That’s the story we hear more frequently.”
One of the most common mistakes when people move to Florida: they purchase a home with cash and don’t get flood insurance in addition to homeowner’s insurance, he added. “You cannot live in an era of climate change anywhere on the coast, near a river, a body of water, a lake, a valley, and just have homeowners insurance,” Burgess said.
Despite her parallel condo and personal policies kicking in together to help her rebuild her home, McKinley still had to spend heavily to fix it. She had redone her home in July 2022, two months before Hurricane Ian hit Florida.
“The financial stress of this has been overwhelming. I’ve completely wiped out my savings,” McKinley said. “Electricity had to be replaced, plumbing had to be replaced, the water heater, the appliances, my furniture. It was all washed away.”
Because she still has a mortgage on the home, she had already refinanced to cover unexpected expenses over the years, and was forced to continue to pay for her existing insurance policies as required by her lender.
Only recently has she been able to go down to Sanibel and not “lose it,” as she puts it, “and actually really enjoy being there.”
Are flood risks reflected in house prices?
McKinley’s experience on Sanibel reflects some of the problems associated with living in a flood-prone area in Florida.
Living in Florida can seem appealing on multiple fronts: The weather is warm all year round, there is no state income tax, and homes are much more affordable, depending on where you are moving from. The median price of a single-family home in the state was $420,000 in June, according to the Florida Realtors. That’s more affordable than the Bay Area (with a median price of $1.3 million) or Manhattan ($1.2 million).
But even the financials may not make sense given the rising cost of homeownership in the state: Property insurance rates in Florida are expected to rise by at least 40% in 2023, according to the Insurance Information Institute. The report also stated that the average annual premiums have risen to over $4,200, which is triple the national average. And many of these expenses are necessary: Only 13% of Florida’s households have flood insurance, according to the AAA, “though many more households are at imminent risk of flooding.”
Not to mention the cost of living: Florida had the highest level of inflation in the U.S. in June, according to a recent analysis by MarketWatch.
Home prices are unaffected — for the most part — due to high demand, but that could change as natural disasters become more frequent as climate change worsens. Academics argue that the U.S. housing market hasn’t adequately taken information about flood risk into existing flood maps, and therefore home prices.
According to a study led by Stanford University in 2021, houses in flood-prone areas in the U.S. are overvalued by nearly $44 billion, the study said, “raising concerns about the stability of real estate markets as climate risks become more salient and severe.”
“We like to think that markets work efficiently and incorporate all known information about risk,” Marshall Burke, one of the authors of the study, said. “But here we find clear evidence, in an incredibly valuable market, that the market is underpricing flood risk.”
Prospective homebuyers who viewed homes on Redfin explicitly listed in areas with a high flood risk turned their attention, instead, to homes with a lower risk of flooding, according to a study carried out last year with the University of Southern California, the National Bureau of Economic Research, and the Massachusetts Institute of Technology.
“It’s going to continue to be more and more expensive to live in Florida, especially anywhere on the coast,” McKinley said.
Newcomers moving from blue states should also be aware that Florida is an increasingly socially and culturally conservative state, McKinley added. She said Florida was becoming less friendly to the LGBTQ community and the trans community, as well as minorities. Some of these laws include ones that limit how racism can be taught and bans Chinese citizens from buying property in parts of the state.
The allure of a warm, sunny ‘paradise’
Being a Florida resident himself, from St. Petersburg, the biggest piece of advice Burgess has for people moving to the Sunshine State is to understand the flood and hurricane risks before they move. “Everyone wants to be close to the water, close to the coast,” he added. Ask real-estate agents questions like whether the building was built to the latest code, ask for a certificate from the seller to understand the elevation and whether it can withstand flooding. People need to do their “due diligence when they are moving to the state of Florida,” he stressed.
Despite the trials and tribulations she has gone through over the last year, McKinley said would still stay in Florida. “I still love the location, I love the weather, and the lifestyle on the island — it’s so laid back,” she said. McKinley also deeply valued the community on Sanibel Island.
Even though her home has appreciated in value since she bought it in 1998, and is estimated to be valued at around $465,000, up from her $150,000 purchase price, according to online real-estate brokerage estimates, she wasn’t looking to sell. She rents the home while she does not spend time on the island.
“Sanibel — it’s a real paradise,” McKinley said.
“There’s parts of it that still look like a war zone, and it’s kind of devastating to see so many [shops] go out of business, and many people have sold their homes,” she added. “But I’ve decided to stick it out.”