A strong market could be masking sea level rise's impact on Delaware coastal home values

With every prolonged rainfall or coastal storm, it’s a nearly surefire bet that Dover Street in Dewey Beach will flood.

That may be why homes on this street, despite close access to the ocean and a clear view of Rehoboth Bay, often sell for less than anywhere else in town, Dewey Beach Mayor and real estate broker T.J. Redefer said.

“Houses in this part of Dewey are the lowest value because it floods there more than anywhere else, but they’re still going up,” Redefer said. “They’re not drawing a straight line to sea [level] rise, but they are drawing a line to low elevations.”

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With a thriving market driving Delaware beach home prices up – and no end in sight for the dream of retiring to a life on the water – the connection between house prices and an increase in flooding events is a bit harder to pin down.

But to Delaware's north and to its south, neighboring states facing the risk of sea level are seeing impacts on home values.

Researchers with First Street Foundation, a New York-based nonprofit team of marketers and researchers, found that five East Coast states – Florida, South Carolina, North Carolina, Virginia and Georgia – lost $7.4 billion in coastal home value from 2005 to 2017 because of flooding exacerbated by rising sea levels.

They found similar results this summer in New Jersey, New York and Connecticut, where it is estimated that $6.7 billion had been lost in home values from 2005 to 2017 due to sea level-driven flooding.

Steven McAlpine, First Street’s head of data science, said the organization’s work has not focused on the projections for rising sea levels – which fluctuate from an additional 2 feet to 7.1 feet over the next century, according to the National Oceanic and Atmospheric Administration.

Instead, they looked at what has happened in recent storms and real estate transactions, following a study on the Miami-Dade area that found that $465 million in home values had been lost due to flooding.

“It has a market impact and the mechanism is pretty impacted,” he said. “When you see the water on the street, debris left over, grass that’s dead, it’s all pointing to some risk. Even if your home is fine, that’s alarming to the buyer.”

Another group of scientists from Penn State University and the University of Colorado at Boulder found that across the country, educated buyers looking at real estate purchases as more of a long-term investment rather than a place to lay their head at night, simply aren’t willing to pay as much for something at a lower elevation.

On a national average from 2007 to 2016, those homes sold for 5 percent to 7 percent less than those with less risk of coastal waters reaching the front steps.

That study found no significant price difference for homes purchased as a primary residence, or in the rental market.

“The people buying it for other reasons are more likely to care about these long-run price changes,” said Matthew Gustafson, assistant professor of finance at Penn State and co-author of the study. “It suggests that at least a big segment of the population believes sea level rise is going to be an important factor in home values.

"Markets are pricing sea level rise … [but] the owner-occupied market isn’t pricing it as much. Which means you don’t want to overpay for an exposed property in that market.”

However, Gustafson said there weren’t enough Delaware samples in that study to be confident whether those estimates line up on that local level.

But the average discount seen among similar homes at different elevations bought as investments or as second, third or fourth homes has been climbing in recent years, he said.

When Gustafson and his colleagues looked at the earliest data from 2007 to 2011, it was difficult to see any discount at all. From 2012 to 2014, a similar home at a lower elevation was priced about 10 percent less. And in 2015 and 2016, that discount climbed closer to 20 percent, he said.

“As this new information that projects more dire sea level rise projections has been coming out, the discount associated with sea level rise exposure is likely going to increase,” he said.

In Delaware, the jury is still out on whether sea level rise is having an economic impact on the local coastal real estate market.

“I haven’t spoken with any Realtors saying it’s having a big impact,” said Anne Rendle, CEO at the Delaware Association of Realtors. “What I’m hearing from Realtors is the inventory is low and they’re flat-out busy.”

There is no debate among scientists that water levels have been rising in Delaware. In Lewes, water levels have risen by an average of about 3.35 millimeters per year — which is twice the global average.

NOAA has estimated that oceans could rise up to an additional 6.6 feet over the next century- and state officials have previously estimated that 8 percent to 11 percent of the state’s land could be underwater by 2100.

On top of that, the state is also sinking. Subsidence, the gradual sinking of land, driven by geological changes that can be blamed on the last Ice Age, makes portions of the Mid-Atlantic – and especially Delmarva – a hot spot for sea level rise, scientists say.

Technically, it’s relaxation from what scientists call “forebulge,” said University of Delaware coastal geologist Art Trembanis. Like when someone sits on a bean bag and the other side of the bag rises, when they get up, it all levels out. Delmarva is very, very slowly leveling out after all that ice to the north melted away and relaxed pressure 15,000 to 18,000 years ago, he said.

As the lowest lying state in the nation situated in that hot spot, with serious threats of inundation if climate change wreaks the havoc scientists expect it to in the next century, anyone armed with that information would likely think a bit harder about whether it’s worth purchasing a $1 million home that could be more useful as a boat by the time they pass it on to their great-great-grandchildren.

But for now, the evidence is not clear whether buyers and sellers in Delaware are thinking that way because the evidence showing that is extremely limited.

University of Delaware economics professor George Parsons said he is unaware of any local studies linking sea level rise to declining coastal home values, and that past studies on how flooding impacts real estate pricing found little impact.

“It doesn’t mean this can’t work its way into the market,” he said. “I really don’t think it has much at this point.”

Delaware’s place in this trend may be a little clearer by the end of the year, as First Street takes a closer look at how sea level rise is impacting coastal markets in Delaware and Maryland, McAlpine said.

Parsons said he is interested in possibly pursuing his own study.

What Delaware real estate experts are seeing is a seller’s market, with rising prices, extremely low inventory and a relentless demand for living that salt life.

“The cost of flood insurance is the concern of the buyer today,” said Susan Giove, an associate broker at Mann & Sons Realtors. “Since Hurricane Katrina, the whole dialogue and discussion about insurance and flood insurance changed completely overnight. And we saw the ripple effect up here with our buyers.”

Rising prices and low inventory continues rippling inland, as The News Journal reported at the beginning of summer. Giove said national experts anticipate that trend will continue or remain stable for the next two to three years.

“Homes that are priced right go in a flash,” she said. “The only thing we see is the buyer that comes and asks how much will flood insurance cost.”

Rising prices in a healthy market could be shielding the negative impacts from sea level rise – if they even exist. Redefer said Delaware is usually a little behind the curve when it comes to market trends, so that may be playing a role as well.

What seems much clearer is that buyers are becoming more educated about the risks of living along the coast, Redefer said.

“It’s a conversation in our nation that has caused buyers to ask the tough questions, and that’s made buying and selling real estate a bit more comprehensive,” he said. “They still want that water view, but they want the water view with the least amount of flood risk.”

Contact reporter Maddy Lauria at (302) 345-0608, mlauria@delawareonline.com or on Twitter @MaddyinMilford.

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