Climate Change is destroying Everybody’s Property Value – Even Warren Buffett’s
Even Warren Buffett is seeing his property value destroyed by Climate Change. Uncle Warren cut the price of his Southern California beach community home by $3.1 million to unload it.
Buffett is having trouble selling his second home in Laguna Beach, The Orange County Register reports. The house is reportedly within walking distance of the beach. Buffett was asking $11 million for the house, he is now seeking $7.9 million. Buffett’s Orange County vacation home has been on the market since February 2017 with no takers.
Buffett’s property is not the only celebrity beach house losing value. For example, the price of a Malibu beach estate once owned by Tonight Show legend Johnny Carson is being cut from $81.5 million to $65.1 million, The Register notes. The current owner; philanthropist Sidney Kimmel, is cutting the price by $16.4 million (over 20%).
Beach Front Property Values being destroyed by Climate Change
Buffett and Kimmel’s trouble unloading beach homes potentially verifies claims Climate Change could wipeout beach front property values. We must pay attention because far worse carnage is coming.
To illustrate this point, Bloomberg Opinion Columnist Noah Smith compared beach front property today to junk bonds. Like junk funds beach front properties in an age of climate change are prone to sudden price collapses.
Moreover, there is evidence the property-value destruction is hitting average people. For example, property owners in Ocean City, New Jersey, lost $531 million (more than half a billion dollars) in real estate values between 2005 and 2017, the First Street Foundation claims.
Ocean City is far from alone, properties on Long Beach Island, New Jersey, lost $541 million in value during the same period, Bloomberg claims. Flooding caused by Climate Change caused for the value drop, according to Bloomberg.
Beachfront property owners nationwide lost $14.1 billion in real estate value between 2005 and 2017, Bloomberg claims. Buffett and Kimmel will not be the only ones cutting sales prices to unload beachfront homes. Bloomberg estimates that 820,000 beach homes nationwide are dropping in value because of Climate Change.
Climate Change is Devastating Insurance and Real Estate
Beach front real estate is not the only business Climate Change threatens. The insurance industry is in grave peril.
The publicly traded Aspen Insurance Holdings (NYSE: AHL) is selling itself to the Apollo General private-equity fund. Aspen is selling itself because of underwriting losses its reinsurance business incurred from California wildfires.
Aspen recorded a $135 million 4th Quarter 2017 underwriting loss that analysts attribute to California wildfires, Artemis reports. Scientists are blaming 2017 and 2018 California wildfires on Climate Change.
The peak fire season in the Western States is now nine days longer than it was in 2000, University of Idaho and Columbia University researchers discovered. Rutgers Professor Jennifer Francis thinks it traps California in a fire-causing weather pattern. That pattern includes drought and high temperatures.
How Climate Change is Changing Insurance
California wildfires destroyed over 1,000 homes during June and July 2018, The San Francisco Chronicle estimates. Therefore, Aspen’s reinsurance losses will get worse.
Wildfire losses are more destructive to insurers because the federal government does not underwrite fire insurance; unlike flood insurance. Expect major insurers to dump fire insurance in the years ahead.
Hedge funds are likely to move into fire insurance and reinsurance because higher premiums will make for greater short-term profits. Therefore, many insurers are likely to sell their fire and reinsurance businesses to private-equity investors.
Climate Change will increase Property Insurance Rates
Rising insurance rates caused by increased wildfire risks might have prompted Kimmel to cut his Malibu home price. Historically, Malibu’s wildfire danger has been high. Malibu has suffered one wildfire in 2018, in January, according to the Weather Channel.
Weather created by Climate Change is making properties unsellable and uninsurable. Buffett; a major investor in reinsurance, undoubtedly knows of these developments. Berkshire Hathaway (NYSE: BRK.A) owns several reinsurance companies, including General Re or Gen Re.
Companies are likely to pull out of reinsurance because of Climate Change. Under those circumstances, publicly-traded insurers are likely to go private or sell out to hedge funds.
Property owners will face rising premiums because insurance companies operating costs are increasing. Reinsurance firms like Gen Re and Aspen underwrite property and other insurance properties. Consequently, insurers will pass higher reinsurance costs onto policyholders.
In summary, sell the beachfront and forest properties now. Prices for such properties are likely to plummet as insurance costs rise.
Billionaires like Kimmel and Buffett are outliers in Climate Change losses. They can afford to take a loss on beach property, most homeowners cannot.
How Speculators can Profit from Climate Change
I advise speculators looking for stocks to short to examine insurers. Many of them are facing huge losses because of Climate Change.
Beyond insurers there are real estate investment trusts (REITs), railroads, and other companies heavily invested in port and beachfront properties. Those businesses are facing declining property values and rising insurance premiums because of Climate Change.
Berkshire Hathaway’s (NYSE: BRKB) real estate and insurance businesses expose it to Climate Change. To make matters worse, Berkshire Hathaway owns infrastructure companies like the Burlington Northern Santa Fe (NBSF) railroad and pipelines that are very vulnerable to Climate Change.
Climate Change is having profound effects on the economy. These effects are likely to get worse in the years ahead.
All property owners, investors, and speculators need to understand Climate Change–if they want to make money. Those who ignore Climate Change will lose money.
