Does Temperature Change Affect Housing Prices?

Climate change will be one of the key issues in the 2016 presidential elections. Based on prior studies[1], climate in a given location influences people’s housing decisions, and changes in climate may affect these decisions in ways that alter our understanding of desirable locations. Climate change results in a variety of physical effects including changes in temperature, precipitation, and extreme events such as flooding and hurricanes. Let’s see how temperature and housing prices changed since the last pre – election period in 82 metro areas. Please keep in mind that a four year change in temperature could have been influenced by multiple factors, both man-made and natural.

Temperature rose in most of the metro areas studied. Among these 82 metro areas, 34% had a modest increase (up to 3^°F) while temperature increased between 4^°F to 8^°F in 43% of them. Los Angeles-Long Beach-Santa Ana, CA and San Diego-Carlsbad-San Marcos, CA were two metro areas on the list with the highest increase in temperature between September 2011 and September 2015. In contrast, the temperature in Spokane, WA and Boise City – Nampa, ID fell by 5^°F in the same period.

The top 5 metro areas with the highest increase of temperature:

- Chicago-Joliet-Naperville, IL-IN-WI

- Des Moines-West Des Moines, IA

- Los Angeles-Long Beach-Santa Ana, CA

- Omaha-Council Bluffs, NE-IA

- San Diego-Carlsbad-San Marcos, CA

Top 5 metro areas with the highest decrease of temperature:

- Boise City-Nampa, ID

- Spokane, WA

- Portland-Vancouver-Hillsboro, OR-WA

- Houston-Sugar Land-Baytown, TX

- Phoenix-Mesa-Glendale, AZ

When it comes to places to live, Americans like it to be warmer. Comparing housing prices in the second quarter of 2011 with 2015, we see that people prefer a hotter place to live over one with colder climate. Cape Coral-Fort Myers, FL, Phoenix-Mesa-Glendale, AZ, Las Vegas-Paradise, NV, Orlando-Kissimmee-Sanford, FL and North Port-Bradenton-Sarasota, FL ranked at the top of places with the highest gains in housing prices.

Does this mean that temperature changes affect housing prices as well? Based on our data, metro areas with the highest gains in housing prices (50% and more) typically had a small increase in temperature (up to 2^°F) since last pre–election period. For example, in Atlanta-Sandy Springs-Marietta, GA the temperature increased 1^°F while house prices increased 78%. Also, in Cape Coral-Fort Myers, FL where the temperature dropped 1^°F, prices increased 91%. Nevertheless, metro areas where temperature rose more than 3^°F did not experience significant price gains. For instance, in Little Rock-North Little Rock-Conway, AR the temperature rose 6^°F while prices increased 7%. Thus, there seems to be a negative relationship between temperature change and housing prices.

But, correlation does not imply causation. In other words, the above negative correlation between temperature change and housing price does not necessarily imply that an increase of temperature will cause housing prices to fall. The above model does not take into account other factors which may affect people’s decisions and which may have been changing in different ways over the study period. Factors such as good schools, shorter commute etc. may influence where households choose to live and work. Also, housing recovery may be another factor which affected prices. For example, prices fell sharply in the sand states (FL, AZ, NV, GA) due to the high foreclosure rate, thus their recent sharp price increases seem to be a bounce.