Veronica Jones bought her house in Altadena, California, in 1965. In the six decades since then, her block has seen many changes. But only the devastating Eaton Fire early this year managed to empty it out.
"We have 11 homes on our block," Jones told American Banker. "I counted yesterday. Three families have returned."
One by one, Jones described the neighbors who fled: A woman in her 80s had been living in the house she grew up in. Now she's selling it. A young family bought their house less than two years ago. Months after the fire, they still haven't returned. The list goes on — and this was one of the few blocks in the neighborhood that didn't burn.
"It looks fine, but it's the soot and the ashes and the contamination," Jones said. "People with children and people with health issues — they're afraid to come back."
Jones' story is just one person's experience, but experts say it illustrates a danger that's becoming increasingly common: After a community suffers a climate-related disaster, it may struggle to retain its residents or even replace them.
That's a hazard not only for the communities themselves, but for the banks that do business in them. As the population declines, so do property values, and lenders may end up with more of the mortgages on their balance sheets underwater. Compounding the problem is the fact that home insurance typically soars after a disaster — if it's still available at all — which makes houses even harder to sell and losses harder to recoup.
All of this makes it difficult for banks and other lenders to do business in the area. And when that happens, the community loses access to valuable resources as it struggles to recover.
"The fire event is tragic enough," said Seth Sprague, director of mortgage banking consulting at the accounting firm
The crisis in California
As climate change continues to unfold, extreme weather events — not only fires, but floods, hurricanes, heat waves, droughts, tornadoes — are becoming more frequent. Of the top 20 most destructive wildfires in California's history, for example, 15 happened within the last 10 years.
"This is not a future, potential risk," said Steven Rothstein, director of the nonprofit
Most recently, the wildfires that tore through California in January were some of the costliest in the state's history. The insured losses from the fires, which destroyed more than 16,000 structures, totaled more than $30 billion,
The aftermath, experts say, is likely to include skyrocketing insurance rates and falling property values.
"In California, we expect housing values to lower, household wealth to diminish, and outmigration to be amplified regardless," Moody's wrote.
The impact on insurance is already being felt. In February, State Farm asked California regulators to approve an emergency
"It does stretch people's budgets to the point where that mortgage doesn't make sense for them anymore," said Jeremy Porter, head of research at
The climate connection
Was this crisis caused by climate change? Both scientific and financial experts say so. A study by the research group
"The January 2025 Los Angeles region's wildfires highlight the changing nature of wildfire risks in California due to shorter rainy seasons, hydrological volatility, frequent severe wind events, and increasing vulnerabilities in urban-wildland interfaces," S&P analysts wrote.
And Los Angeles is far from the only example of a climate disaster wreaking havoc on housing markets. After Hurricane Katrina struck New Orleans in 2005, the city's population dropped by more than half and has never fully recovered. Housing prices eventually soared in the years afterward, but not soon enough to stop
Paradise, California, suffered the most destructive wildfire in California's history in 2018. One year later, lots in the area were selling for less than half their value before the fire, according to reporting by
As with New Orleans, property values in Paradise did ultimately recover. But climate change, which causes extreme weather events to become more frequent, creates an additional risk: What if a community faces a disaster not just once, but repeatedly?
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As S&P pointed out in its report, this danger exists in Los Angeles.
"Although the fires are contained, environmental conditions remain that present risk for additional events," the analysts wrote.
Containing the risks
How can banks protect themselves from this crisis? According to Porter, the first step for any lender is to quantify the danger to their loans.
"The best thing banks can do is know their risk," Porter said. "Use tools that allow you to understand the risk at the property, understand potential insurance gaps at those properties, understand what's going to happen to that risk in whatever the bank's holding time is."
An important part of that work, Porter said, is taking climate change out of isolation: A business should integrate environmental risks into its overall risk analysis, not relegate it to "a standalone climate team."
There are also other important steps to take. Sprague emphasized the need for banks to diversify their mortgage portfolios, so that not too many properties are exposed to any particular disaster.
"If you put all your 30-year fixed rate mortgages on your balance sheet on the Outer Banks of North Carolina, it's probably not going to be a long, good, long-term strategy in the next 30 years," Sprague said.
On a more minute level, Rothstein pointed out, lenders can also pay close attention to a house's vulnerability before issuing the loan: Is it in a flood zone? Does it have a strong roof? Is it within five feet of flammable brush?
"Where are people being allowed to build?" Rothstein asked. "Should they rebuild on the side of a mountain where it's fire to fire to fire?"
These are difficult questions, all three experts agreed, and taking the steps to address them will require time, effort and resources. But as the climate continues to change, banks will need to change with it.
"This is an ever-growing risk in the mortgage industry," Sprague said. "We're really in the first innings of understanding these acute climate risks."
