👋👋 Good morning real estate watchers! Today, we are going to talk about...

1. Politicians suggest a national catastrophic insurance fund. Translation: ‘Hey, let’s all pitch in so Florida Man can keep building mansions on sandbars while the rest of us quietly drown in debt.

2. Data centers are popping up faster than Starbucks, except instead of lattes, they’re serving megawatts—and now the locals want a few houses that don’t come with blinking lights and cooling fans.

3. New York is charging drivers to enter Manhattan during peak hours—because apparently, surviving city traffic wasn’t punishment enough.

Let’s go!

TOP STORY

INSURANCE INFERNO

At this point, California wildfires are so frequent they should start getting Yelp reviews.

As another relentless blaze engulfs areas around Los Angeles, the view from the real estate market is anything but rosy—or clear. Smoke is choking the skies, but it’s also clouding the future of a key pillar of homeownership: insurance.

In 2024, global catastrophes—including hurricanes, fires, and thunderstorms—resulted in a staggering $320 billion in economic losses, marking a significant increase from the previous year. Approximately $140 billion of these losses were covered by insurance, making it the costliest year for the industry since 2017.

For real estate watchers, the crisis highlights a growing question: How long can property markets withstand the heat of climate change?

The Insurance Exodus

California homeowners face a hard truth: wildfires are reshaping the insurance landscape. Insurers like State Farm and Allstate have stopped issuing new policies in the state, citing “catastrophic wildfire risk.” What’s left for homeowners? The California Fair Plan—a state-run last-resort option—offers limited coverage and soaring premiums, but it’s no panacea.

California's Department of Insurance recently introduced a new regulation to increase homeowners insurance coverage in wildfire-prone areas. The rule, set to take effect by late January, will require insurers to incrementally increase policies in high-risk areas by 5% every two years until reaching at least 85% coverage. To incentivize compliance, insurers will be allowed to pass on reinsurance costs to consumers with caps in place.

Across the country, the picture isn’t much brighter. National home insurance premiums averaged around $2,400 in 2023, but homeowners pay a jaw-dropping $11,000 annually in disaster-prone states like Florida.

And as the frequency and severity of natural disasters grow, insurers are pulling back in other high-risk areas, from the Gulf Coast to the floodplains of the Midwest.

Climate Risk, Real Estate Fallout

Natural disasters are no longer just acts of God—they’re balance-sheet killers for homeowners and investors. Rising premiums, limited coverage, and the outright absence of insurers in some regions are eroding the economic foundations of property markets.

Zillow, the real estate listing platform, recently added climate risk data to all U.S. home listings. Potential buyers can now view a property’s exposure to floods, wildfires, and other climate risks. ‘Congratulations, this home has four bedrooms, two bathrooms, and a 100% chance of being the next scene from Twister.’

This shift is giving buyers pause—and reshaping markets.

A study by the National Bureau of Economic Research found that flood risk alone can lower property values by as much as 10%. If wildfires, hurricanes, and heat waves are layered into the equation, entire regions could face a real estate reckoning.

The Government Debate

The question of who pays is increasingly shifting to state and federal governments. Florida Congressman Jared Moskowitz recently proposed a national catastrophic insurance fund, which would spread risks and costs across the country.

The plan isn’t without controversy. Critics argue that spreading costs nationally may disincentivize local governments from making necessary changes, such as implementing stricter building codes or discouraging development in high-risk zones.

Migration Patterns in Flux

As insurance becomes more expensive—and sometimes unavailable—buyers are rethinking where they want to live. The Sunbelt, long a magnet for migration due to affordable housing and low taxes, is seeing the hidden costs of natural disasters.

But not everyone can simply pick up and leave. Lower-income homeowners often bear the brunt of these crises, stuck in high-risk areas with dwindling options for affordable insurance.

“There’s a very real possibility that climate risk will create new housing inequalities,” says Robert Dietz, chief economist for the National Association of Home Builders.

The intersection of climate change, insurance, and real estate is not just a California problem—it’s a global one. From flood-prone coastal towns to wildfire-scorched suburbs, the rules of homeownership are being rewritten.

For now, the market remains hot, but not in a reassuring way. As climate risks become impossible to ignore, the costs—financial and emotional—will test even the most resilient property markets.

In real estate, the old mantra was “location, location, location.” Today, it might just be “mitigation, mitigation, mitigation.”

SNIPPETS

1️⃣ Bytes vs. Bricks: Atlanta is experiencing a surge in data center construction, with growth outpacing most major cities. This expansion, driven by tech giants' AI ambitions and the city's favorable conditions, is now facing pushback from local officials and residents. Concerns are mounting that the rapid proliferation of data centers is competing with essential urban development needs, such as housing and retail spaces. In response, Atlanta has implemented restrictions on new data center locations, highlighting the growing tension between digital infrastructure demands and traditional urban planning priorities. (WSJ)

2️⃣ Permit Me to Explain: Multifamily housing permits in the U.S. showed a significant increase in November 2023, with the annualized rate jumping 22.1% from October. However, this surge is misleading due to seasonal adjustments. The 12-month moving average, which better reflects actual trends, indicates a nearly 22% decrease in multifamily permitting compared to the previous year. Regional variations were observed, with the Northeast experiencing a notable increase while the West saw a decline. (RealPage)

4️⃣ Mortgage Madness Mounts: The Mortgage Bankers Association reports a significant increase in commercial and multifamily mortgage debt in Q3 2024, with total outstanding debt rising by $47.7 billion to $4.75 trillion. Life insurance companies led the growth, accounting for 44% of the quarterly increase, while banks showed minimal growth. Multifamily mortgage debt alone increased by $29.8 billion. Commercial banks continue to hold the largest share of commercial/multifamily mortgages at 38%, followed by agency and GSE portfolios at 22%. (ConnectCRE)

5️⃣ Hurricane Force Premiums: Insurance costs are becoming a significant concern for the multifamily real estate sector, according to Colliers' 2025 Outlook. The report highlights that rising operational expenses, particularly insurance premiums, are affecting deal pricing and causing some buyers to abandon transactions. While larger operations may have some ability to mitigate these increases, the anticipated active hurricane season in 2025 is expected to keep insurance expenses a primary consideration for all parties involved in multifamily real estate transactions. (Globe St)

6️⃣ Manhattan's Traffic Toll: New York City is set to implement congestion pricing on Sunday, becoming the first U.S. city to charge drivers entering parts of Manhattan during peak hours. The program aims to reduce traffic congestion and raise $15 billion for the Metropolitan Transportation Authority to upgrade the city's aging public transit infrastructure. Despite legal challenges, including a last-minute attempt by New Jersey to block its implementation, the plan will proceed. (Bloomberg)

6️⃣ Mortgage Makeover: The Trump administration's potential privatization of Fannie Mae and Freddie Mac, which support approximately 70% of U.S. mortgages, has sparked investor interest and raised concerns about economic risks. A recent roadmap for privatization, released by the Treasury Department and Federal Housing Finance Agency, outlines a process requiring public comment and Treasury involvement. However, experts warn that extracting these entities from government control while repaying Treasury, ensuring financial stability, and preventing mortgage rate increases may be nearly impossible. (Axios)

7️⃣ Rent-Rigging Ruckus: The U.S. Department of Justice has expanded its antitrust lawsuit against RealPage, a property management software company, to include six major landlord companies operating over 1.3 million units across 43 states. The lawsuit alleges these companies participated in an unlawful scheme to decrease competition in apartment pricing, harming millions of American renters. (WSB)