I’m looking today at the increasingly large role that climate and natural amenities play in the housing market.

Places with good weather and natural beauty are highly valued real estate markets. But more than just adding value, these natural amenities have been influencing price changes.

To understand the role that climate and the outdoors play in housing, we need to be able to measure, or quantify, climate and outdoor amenities, so as to compare locations across the U.S. I have done this through a climate and outdoor amenities scoring system I developed for Homeworthi’s forecasting. The scoring system includes things like average temperatures, sunny days, heat / cold waves, and presence of water or mountains nearby. (A hat tip to the EPA Natural Amenities Index for an early version of this concept.) The map below summarizes that scoring system, placing each county into one of four tiers based on its climate and outdoor amenities score. In the map, Tier 1 equates to the best mix of climate and outdoor amenities, Tier 2 next best, and so on.

The resulting map favors the southern and western parts of the country, but not exclusively - parts of the Northeast and Midwest are also highly rated. Meanwhile, the long winters and minimal outdoor activities in the Midwest give these areas the lowest ratings. (Though even the areas in pink have great qualities - someone just has to come in last.)

So how do climate and natural amenities relate to current prices and recent price change?

The chart below the map shows both average prices and average price change over the past 5 years. The better the climate and outdoor amenities, the higher the average home price and larger recent price change. Tier 1 counties have the highest home prices, at over $286,000, and they also had the highest average 5-year price increase, at 51%. Conversely, Tier 4’s average home price was $100,000 lower, and had 5-year price increases of 38%. And this phenomenon was happening prior to Covid; in particular, Tier 1 counties outperformed other tiers, though Covid clearly accelerated the recognition of the outdoors as a valuable amenity.

This price increase was actually anticipated in Homeworthi’s 2017 forecast.

Homeworthi’s identified climate and outdoor amenities as generally undervalued by the real estate market, even as many of these locations were already high-priced. The table below shows the average medium-term (i.e. 5-6 year) forecast by tier. As you can see, the Tier 1 areas had the highest average forecast score, while each successive tier had lower scores.

Today’s forecast looks even rosier for the Tier 1 counties. Even with the now-larger price differential between Tier 1 and other counties, Tier 1 counties are expected to be excellent investments.

Why?

Several reasons. Strong employment growth and increased work-from-home opportunities have increased economic advantages for these counties to pair with their quality of life advantages. With Baby Boomers moving into retirement, quality of life takes on an even bigger role in location preference, further driving demand in warm climates. And Tier 1 counties have also made gains in public investments like schools and public transportation, furthering the benefits these communities have to offer.

The table below shows the average medium-term forecast by tier for the next 5-6 years.

Overall, it’s looking like climate and outdoor amenities have been and will continue to be drivers of home value. Price differentiation will at some point erode some of the economic and quality of life advantages in areas with great weather and great outdoor attractions. And it’s important to note that there are good and bad forecasts throughout each of these tiers - some Tier 1 neighborhood and counties have low Homeworthi forecasts, and plenty of Tier 1 neighborhoods and counties are good investments.

But I’m comfortable saying that most locations with good weather and good outdoor amenities are good real estate investments over the next 5 years.