People buying homes on Florida's flood-prone coasts will likely have trouble selling in the future, Redfin CEO said

• Climate change is spurring tropical storms in Florida, putting coastal cities at more risk for flooding.
• Glenn Kelman, Redfin's CEO, said homeowners in flood zones will have trouble selling to regular buyers.

Florida has experienced five federally-declared disasters since 2000 in the form of strong hurricanes and tropical storms that have caused flooding and severe housing damage, and ultimately, cost the state, insurance companies, and taxpayers billions of dollars.

However, despite the environmental devastation, Americans continue to purchase homes in the natural disaster-prone state — even though home sales and values remain at risk in areas of Florida most susceptible to sea-level rise.

Glenn Kelman, the CEO of real estate brokerage Redfin, said it's a problem that is likely to escalate as climate change ramps up.

"The insurers, the lenders, the appraisers — everyone — is stepping back from these coastal properties because they are so vulnerable to super storms that are becoming increasingly common," Kelman said on a January podcast with Barron's, adding that many prospective buyers cannot afford the housing costs that come with living in these risky areas.

According to Kelman, investors are stepping in because they are the only ones that have the cash and can "withstand the risk posed by climate change."

In 2022, Hurricane Ian, the second most expensive hurricane in American history, left Florida with as much as $65 billion in insured damage, according to a December report from insurance company Swiss Re. Over the past few years, the frequency of tropical storms as well as their escalating costs have prompted several large insurers — such as John's Insurance and Southern Fidelity — to increase their insurance rates or pull out of the state entirely. Higher housing costs have turned off many would-be buyers, encouraging some to settle in different states.

"You just can't afford the mortgage, it's not going to appraise for the price that you want and the flood insurance is going to be disastrously high," Kelman said, "We just can't figure out a way to socialize all these risks for regular homebuyers."

Investors swoop in on Florida's housing market

While regular homebuyers with financing may have trouble getting approved for a loan or get insurance on a house that has major structural issues or is located in a flood zone, cash buyers are able to cut through any red tape and hurdles by simply purchasing a property outright. Investors can also finance purchases of risky homes through the use of hard money loans, or private loans from other investors, typically with a higher interest rate.

Investors have been busy in Florida throughout the pandemic, and in more recent months. Data on the number of cash sales — a way to gauge the extent to which investors are participating in the market — from Florida Realtors shows that in September, the same month that Hurricane Ian hit, the state saw 5,980 cash purchases. These cash deals represented nearly 30% of all closed sales in the state that month, the data indicates.

Kelman says that in September, during the aftermath of Hurricane Ian, Redfin's Florida offices received two types of calls from clients: Homeowners who wanted to sell their properties but felt like they no longer had the option and investors who were eager to secure a deal on the homes that remained standing.

"Regular residents of Florida were calling us almost in tears because they were standing on their second floor balcony and up to their knees in water and wished they had sold earlier," he said.

On the opposite line were either institutional or retail investors — a nonprofessional investor without the backing of hedge funds — who Kelman says maybe had "an extra $700,000" and saw the hurricane as "an investment opportunity."

"It was a surreal experience," he said. "I visited the Tampa Bay area right after Hurricane Ian hit just to check on the welfare of our own employees. They just had so many stories of investors calling while the hurricane was making landfall."