'Nobody wants to talk about it': A market-shifting real-estate trend is hiding in plain sight — and these 5 states will benefit most - Business Insider

Sun Belt Will Become the 'Sun Melt' Due to Climate Change: Ivy Zelman - Business Insider

- Few real-estate analysts are focused on a crucial trend that may reshape the market: climate change.
- Housing-bubble-spotting researcher Ivy Zelman explained why she's concerned.
- Here are five Midwestern states that can be the biggest winners from the upcoming shift.

Ivy Zelman prides herself on spotting non-obvious trends before her peers, as she did in 2006 before the housing bubble burst.

The founder of research firm Zelman & Associates and former Wall Street analyst has been searching for the next disruptive real-estate development. This year, she's been studying how limited home inventory and elevated mortgage rates have crippled home affordability.

But that narrative is now common knowledge, Zelman said in a recent interview. That's why she's shifting her focus to an elephant in the room that many of her peers pretend is invisible.

"We've got a real headwind from climate change," Zelman told Business Insider in late July. "People today are suffering with extreme heat, they're suffering from flooding and damages and the lack of insurance. Now, what is this going to be longer term if it doesn't get better? And I think that is where everyone has their head in the sand."

'No one has a good answer' to steadily rising temperatures

Climate change is often treated like a politically sensitive issue, even though Zelman is convinced that its effects — including intense heat and storms — are impossible to ignore.

"It's pretty obvious," Zelman said. "You don't need a climate expert to see what's happening."

Whether they're climate-change-denialists or simply in denial about what's going to happen, Zelman said that property developers in coastal areas aren't sweating warmer temperatures.

"Nobody wants to talk about it," Zelman said. "I've talked to companies that are large entities, big, big capital providers or just operators, developers. And I asked them, 'What are you going to do? I mean, you're right on the coast. Are you guys contemplating this?' They're like, 'No.' They don't even talk about it in their board meetings. So I think it's something that no one has a good answer [for]."

The two hottest days in recorded history were earlier this week, according to the Europe-based Copernicus Climate Change Service. Most scientists say that's due to climate change caused by humans, but even if it's a coincidental pattern, the trend of rising temperatures is undeniable.

"Temperatures keep going up and up and up, and they're starting to get hotter earlier," Zelman said. "So whether you believe it's climate change or not, that's irrelevant."

Climate change's effects aren't just noticeable in weather forecasts. Homeowners may have to battle higher insurance costs and taxes in addition to lower air quality and warmer temperatures.

"Can people survive it, and can they afford it? Whether it's air conditions, whether it's the insurance costs, their property taxes gone through the roof," Zelman said. "So I think there's going to be a rethinking of 'Where do I want to be?'"

Midwestern cities are destined to overtake the 'Sun Melt'

During the "great reshuffling" of the pandemic, warmer states in the Sun Belt region were among the biggest beneficiaries. The widespread advent of remote work allowed millions of people to relocate, and many moved in droves to warmer states in the Southern US.

Most states in the South saw an influx of residents in 2023, according to data from moving firm Allied Van Lines. The Carolinas, Tennessee, Florida, and Arizona saw the largest net increases, Allied's report found. Storage service PODS had similar findings this year, noting that the top states for movers in 2024 so far are North Carolina, South Carolina, Tennessee, Georgia, Alabama, Arizona, and Texas.
Allied Van Lines

However, Zelman believes the opposite will be true in the coming years. She expects millions to start choosing cities in cooler climates that are less crowded and offer more space for less cash, all without climate-related headaches like heat and storms that lead to sky-high insurance costs.

"If we're looking five years out, I would bet that the migration reverses and there's migration from [the] South to [the] North/Midwest/Central part of the country where you don't have to deal with all the issues that people are now dealing with," Zelman said.

Zelman may have spotted this trend early, though she's not the only one. Economic researchers at the Federal Reserve Bank of San Francisco recently came to the same conclusion.

"Our findings suggest the 'pivoting' in the US climate-migration correlation over the past 50 years is likely to continue, leading to a reversal of the 20th century Snow Belt to Sun Belt migration pattern," researchers Sylvain Leduc and Daniel Wilson wrote in a mid-July paper.

Instead of so-called "snowbirds" flocking from the Northeast to the South during the winter, Zelman thinks people living in the South will become "summerbirds" who buy a second home in a temperate city or relocate entirely, saving hundreds of thousands of dollars in the process.

"There's huge arbitrage for that now," Zelman said. "They could sell their place in Miami for seven figures and buy the same square footage for half or even less than half the price."

Five Midwestern states will be among the biggest winners from this upcoming shift, Zelman said: Ohio, Michigan, Illinois, Iowa, and Wisconsin. The Cleveland resident is convinced that people will be charmed by those states' more affordable markets and cooler summers. Plus, rising global temperatures mean Midwestern winters don't have the same bite they once did.

If Zelman's worst fears about climate change come true, homeowners may eventually find themselves scrambling to move from the Sun Belt, which her colleagues are jokingly starting to call the "Sun Melt" region. This could lead to a domino effect where property values crater.

This trend won't happen overnight, but as Zelman demonstrated nearly two decades ago before the housing bubble burst, it's better to be early to a seismic market shift than late.