The Heterogeneous Impact of Temperature Growth on Real House Price Returns across the US States

This paper investigates the impact of temperature growth on real returns of US housing markets at the state level. Using the 1-month, 3-month, and 12-month horizons for the period 1975:01 to 2021:06 and heterogeneous random coefficients panel data model, we find that increased temperature growth rates negatively affect real house price returns across all horizons. The effects intensify when the media refers more to climate change news. While most states experience a decline in real house price returns at a 3-month horizon, the largest relative negative impacts are registered over the 12-month horizon, suggesting that climate risk is a long-run risk. Geographically, the rising temperatures have the most negative effect on real house returns in the US West Coast states of California, Arizona, Nevada, and Idaho, and the Sun Belt states, most notably Florida, Georgia, Texas, Tennessee, and Alabama. The results remain robust after controlling for state-level leading economic indicators and state- and national-level economic uncertainty arising from policy changes.