Flooding Drives Surge in Home Foreclosures as Climate Risks Intensify, Report Finds
Americans aren’t ready for the effects of climate change
Floods now cause more foreclosures than hurricanes or wildfires, due to widespread insurance gaps.
Just a fraction of U.S. homeowners have flood insurance—leaving them financially exposed.
Analysts call for climate-adjusted credit models to protect lenders and borrowers alike.
As extreme weather events intensify across the United States, flooding has emerged as the leading natural disaster triggering a wave of home foreclosures, according to a new report from First Street Foundation, a climate data firm. The study reveals that climate-driven floods are disproportionately driving homeowners into default—not because of the physical destruction alone, but due to financial gaps in insurance coverage.
Unlike wildfire and wind damage—which are often covered under standard homeowners’ insurance policies—flood damage requires a separate policy, and most Americans don’t have one. This leaves them unprotected when water inundates their homes, creating a direct path from disaster to foreclosure.
Floods More Likely to Lead to Foreclosure Than Other Disasters
The report examined 55 major natural disasters—16 windstorms, 10 wildfires, and 29 floods—between 2000 and 2020, using foreclosure records from county assessor offices. The findings were stark:
Only one wildfire event and six windstorms were followed by elevated foreclosure rates.
Twenty of the 29 flood events, however, were followed by a spike in foreclosures in the affected areas.
Notably, the nine floods that did not lead to higher foreclosure rates were in affluent neighborhoods with rising home values—suggesting wealthier homeowners either had better insurance or more financial resilience.
“Mounting flood risk coupled with gaps in flood-insurance coverage and low policy take-up are amplifying losses and triggering foreclosure,” the report states.
The Sandy Example: $68 Million in Loan Write-Offs
As a case study, First Street examined the aftermath of Hurricane Sandy in 2012. The storm caused widespread damage in the Northeast, but the true financial cost emerged in the years that followed: hundreds more loan defaults than expected and $68 million in unanticipated mortgage write-offs.
Ripple Effects on Credit and Lending
These trends, the report warns, could destabilize credit markets, as banks and lenders may face far higher-than-expected losses when borrowers default en masse after climate disasters. The lack of insurance leaves both homeowners and financial institutions vulnerable.
“It’s no longer sufficient to evaluate a borrower’s credit score alone,” said Matthew Eby, founder and CEO of First Street, in a statement. “Climate risk associated with the property itself has become a core determinant of creditworthiness.”
The findings underscore an urgent need for climate-adjusted credit models—a move that could change how mortgages are approved, priced, and insured across the country.
Financial Industry on Notice
Sponsored by Beacon Hill & Associates, Inc., the study calls on lenders, insurers, and regulators to adapt to a fast-changing climate reality. As flooding becomes more frequent and severe, particularly in previously low-risk zones, financial systems must evolve—or risk being caught off guard by the rising tide.