Super El Niño could reshape US housing market, reveal vulnerabilities

A powerful El Niño brewing in the Pacific Ocean is poised to influence U.S. housing market conditions this winter, potentially exposing vulnerabilities in homes and impacting real estate agents, insurers, appraisers, and buyers across the country. Howard Botts, chief scientist at Cotality, stated that the coming weather pattern will not necessarily create new risks but rather reveal existing ones, affecting the marketability and values of homes even if they are spared direct damage.

Historically, El Niño events occur every two to seven years, but current predictions suggest a "super El Niño" due to record-high sea surface temperatures. Botts anticipates a shift in the jet stream, directing atmospheric rivers over the southern U.S., which typically means increased rainfall for California. He noted that in his own experience in Pacific Palisades, preparations for mud flows are becoming routine before storm events.

Coastal flooding is another significant concern, exacerbated by recent hurricanes that have accelerated erosion in Orange and Los Angeles counties. Botts explained that warmer waters cause sea levels to expand, and when combined with storm waves, king tides, and full moons, widespread coastal flooding is likely. While El Niño has suppressed hurricane activity in the Southeast this summer, Botts cautioned against assuming a long-term reprieve. He expects cooler, wetter conditions for the Southeast and Gulf Coast in late fall and winter, potentially bringing more severe convective storms and tornado activity.

Conversely, the Pacific Northwest is predicted to be drier, increasing wildfire risk by late spring and summer. Drier conditions across the northern U.S. could also have agricultural implications. Botts highlighted insurance markets as an early warning system, with rising rates or difficulty obtaining coverage signaling the risk market's concerns.

Cotality is also monitoring transaction cancellations, which can indicate failed inspections, appraisals, or issues securing hazard insurance. Botts dispelled the misconception that homes outside designated flood zones are automatically covered, explaining that intense rainfall events causing flash flooding may not be adequately covered by standard policies. He advised buyers and agents to focus on individual property structures and utilize comprehensive property risk reports.

Michael Romano, vice president of staff appraisers for valuation at ServiceLink, echoed that even properties without direct damage can see their values pressured. He noted that extended marketing times, reduced asking prices, or seller incentives can diminish values. Increased buyer awareness of external factors, such as higher insurance premiums, taxes, or community fees, could lead to reduced demand and downward price pressure. While appraisers do not directly compare insurance costs, they analyze market data and trends influenced by these external factors.

In contrast to the West Coast and Gulf Coast concerns, Alfredo Pujol, chairman of Miami Realtors + RWorld, stated that El Niño has not been a prominent topic for buyers and sellers in South Florida. Miami is on track to set a record for home sales, and Pujol anticipates continued migration from California and other states facing housing challenges. He pointed to Florida's initiatives like the My Safe Florida Home program, which helps homeowners with upgrades and repairs, and noted a slight decline in insurance rates for some homeowners.