US Housing Market Warned of Mortgage Rate Hikes, Foreclosures

Extreme weather disasters—such as flooding, hurricanes and wildfires—will cause a surge in foreclosures across the U.S. in the coming years, leading to enormous financial losses for lenders, according to a new report by First Street.

Mortgage lenders could lose $1.2 billion in weather-driven mortgage foreclosures this year, found researchers at the company, which analyzes the impact of climate change on financial risk. The situation is projected to get even worse in the next decade, with this number expected to grow fourfold to $5.4 billion by 2035.

Why It Matters

Several studies have concluded that global warming is making extreme natural disasters more frequent and more severe, especially in traditionally vulnerable states such as California, Florida and Louisiana. This growing risk has immediate consequences on housing, especially when it comes to the rising cost of home insurance and rebuilding destroyed properties.

According to First Street, its report is the first national-scale analysis that shows a direct correlation between climate-driven events and foreclosure rates across the country, finding that they surge after natural disasters.

What To Know

Analyzing high-resolution hazard exposure data and loan-level mortgage performances, First Street found that the mortgage markets are particularly vulnerable to extreme weather events.

Should 2025 turn out to be a particularly bad year—and it began with the devastating Los Angeles County wildfires in January—lenders could lose up to $1.2 billion this year, the company estimated. Florida, Louisiana and California alone are projected to account for 53 percent of all climate-related mortgage losses in 2025.

The main culprit would likely be flooding, the company said, identifying it as the leading climate driver of foreclosure risk. According to the report, foreclosures spike 40 percent among damaged homes following flood events.

"Flooding leads to higher foreclosure rates because many properties are uninsured, especially those outside FEMA's [the Federal Emergency Management Agency's] Special Flood Hazard Areas," Dr. Jeremy Porter, a founding member of First Street and head of climate implication research at the company, told Newsweek.

"Unlike wind and wildfire damage, which are often covered by insurance, flood damage frequently leaves homeowners financially exposed, increasing the likelihood of default. The largest driver of the underinsurance in the flood space is the lack of adequate flood risk mapping by FEMA and the lack of NFIP [National Flood Insurance Program] uptake inside the zones that do exist."

Flood damage is also not included in standard policies, which increases the chance of homeowners not having flood insurance.

David Burt, the founder and CEO of the investment research firm DeltaTerra Capital, told Green Central Banking late last year that of the 3.1 million single-family homes in areas designated by the FEMA as high-risk for floods, about 1.6 million had flood insurance.

On top of that, as many as 3.3 million homes outside high-risk flood areas are likely to be vulnerable to flooding. Of those, 1.4 million had coverage, Burt said.

Historic data by the National Oceanic and Atmospheric Administration shows that natural disasters have become more frequent and more destructive in recent decades. In 2024, the U.S. faced 27 natural disasters that caused losses exceeding $1 billion: one drought, one flooding event, 17 severe storms, five tropical cyclones, one wildfire and two winter storms, according to the National Centers for Environmental Information at NOAA.

In the same year, the total number of foreclosure filings in the U.S. was 322,103, down 10 percent from 2023 and 35 percent from 2019, according to Attom, indicating a stabilization of the market after a few tumultuous years. Recent data from ResiClub, however, showed that foreclosures picked up pace again in the first quarter of 2025, when they were up 40 percent year over year.

It is not climate change alone that is making homeowners vulnerable. Extreme weather events are coming on top of growing vulnerability for borrowers already struggling with rising home insurance premiums, property value depreciation—much needed after the pandemic boom but painful for owners—and broader economic strain.

"Our current economic environment includes a series of other intersecting trends that directly contribute to the risk for homeowners," Porter said.

"Specifically, rising insurance premiums, declining property values, and limited household savings are straining homeowners' finances. When combined with higher debt-to-income and loan-to-value ratios in climate-exposed areas, these factors make borrowers more susceptible to default and foreclosure."

What People Are Saying

Jeremy Porter, head of climate implications at First Street, said in a news release shared with Newsweek: "Mortgage markets are now on the front lines of climate risk. Our modeling demonstrates that physical hazards are already eroding foundational assumptions of loan underwriting, property valuation, and credit servicing—introducing systemic financial risk."

Matthew Eby, the founder and CEO of First Street, said: "It's no longer sufficient to evaluate a borrower's credit score alone. Climate risk associated with the property itself has become a core determinant of creditworthiness. This marks a structural shift in financial risk assessment with major consequences for lenders, investors, and homeowners alike."

What Happens Next

Growing losses for lenders could drive mortgage rates higher as they try to recoup their additional costs. As of last week, the 30-year fixed-rate mortgage, the most popular type of loan in the U.S., was 6.81 percent—more than double its 2020 level of 3.28 percent, per Freddie Mac data.

"Higher credit losses may be passed on through increased mortgage rates to offset lender risk," Porter said.

"This raises the cost of homeownership, potentially leading to more delinquencies and foreclosures, especially in vulnerable communities already facing high insurance and living costs. Ultimately, the 'hidden' foreclosure risk on bank balance sheets could lead to more expensive housing for all of us."

According to First Street researchers, their report should shake lawmakers and regulators into action, encouraging them to adopt climate-adjusted credit models and enhance risk management frameworks to account for the growing risk of natural disasters.

"In general, the most obvious solution is to begin accounting for the risk today in order to protect ourselves from the unintended consequences later," Porter said.

"For example, expanding access to affordable, comprehensive climate hazard insurance and improving flood risk mapping could mitigate foreclosure risk. Integrating climate risk into credit models and strengthening federal and private loss mitigation programs can also help lenders and borrowers adapt to rising disaster exposure," he said.

"Ultimately, climate is just at the beginning stages of being priced into the real-estate market and our ability to properly account for that risk early will make a huge difference in the financial consequences further downstream."

Update 5/21/25, 8:18 a.m. ET: This article was updated with comment from Dr. Jeremy Porter.