A new report has revealed that climate-related disasters could result in billions of dollars in credit losses and force tens of thousands of Americans out of their homes in the next decade. 

Climate-related mortgage risk is making it harder for homeowners to afford their homes or qualify for a mortgage, and it could have a ripple effect on the economy as a whole.

What is climate-related mortgage risk?

Climate-related mortgage risk refers to the rising likelihood that homeowners will default on their mortgages due to physical or financial damage caused by climate disasters like floods, wildfires, or hurricanes. These risks are magnified by higher insurance premiums, drops in home values, and gaps in disaster coverage.

The Financial Times reported that First Street, a risk-modeling group, estimates climate-related credit losses could hit $1.2 billion in 2025 and rise to $5.4 billion annually by 2035. As rising global temperatures make extreme weather events longer and more severe, more homeowners are at risk of having their homes repossessed — not because of poor budgeting but rather nature's volatility.

Why is climate-related mortgage risk important?

The biggest reason is that millions of Americans could lose their homes through no fault of their own. This could also destabilize the broader financial system, according to the report. 

In 2024, insurance losses totaled $320 billion. In response, insurers are pulling out of high-risk areas like parts of Florida and California or hiking premiums to unaffordable levels. Combine this with the property value declines and other economic pressures, and you have a snowballing problem. 

In 2024, about 253,000 U.S. properties were headed for repossession, according to real estate data company ATTOM, cited by The Financial Times.

"Mortgage markets are now on the front lines of climate risk," said Jeremy Porter, First Street's head of climate implications, per the Times. "Our modelling demonstrates that physical hazards are already eroding foundational assumptions of loan underwriting, property valuation and credit servicing — introducing systemic financial risk."

How climate risk drives home loss

While insurance can provide a financial safety net after a disaster, many homeowners lack the coverage they need — especially when it comes to flooding. 

Standard homeowners insurance typically covers wildfire and storm damage, which helped keep repossession rates lower in those cases. But flood insurance is often optional and expensive, leaving many Americans unprotected.

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Because of this, homeowners burdened with damaged property are more likely to default on their mortgage. According to the Federal Reserve Bank of Dallas, rising insurance costs are already pushing up rates of mortgage and credit card delinquency. 

"We have this climate debt built up that we're trying to correct for," said Porter. "At this point, part of that is pricing risk properly so people know what they're getting into when they buy their home."

While rising global temperatures and a volatile climate are huge — and expensive — issues to address, they aren't going away. In the long run, inaction will end up costing much more, from spurring housing crises to leaving more families financially struggling.

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