Climate Price Bubble: Economic Impact in US Housing Market

This research investigates the presence of a climate price bubble in the U.S. housing market, driven by the underpricing of acute wind and wildfire risks. We focus on how recent sharp increases in homeowners insurance premiums cannot be fully explained by rising construction costs and other conventional factors. Instead, we argue that these increases are a function of underlying forward-looking climate risks. Using the representative US census sample to model the U.S. $65.01 trillion housing market comprising 140 million units, we assess the distribution and intensity of these physical climate risks, projecting their dynamic changes over time. Our analysis examines whether current insurance premiums accurately reflect these acute risks by comparing existing market premiums with those derived from an advanced forward-looking physical climate risk model developed by Jupiter Intelligence. Based on our calculations, the total climate economic valuation impact is estimated at around $2 trillion, of which a large fraction is not currently priced through the property insurance market and is not reflected in existing housing market valuations. These findings have crucial implications for anticipating potential market corrections and understanding the broader economic consequences of mispricing acute climate risks in the U.S. housing market.