High insurance premiums are affecting the housing market. According to Realtor, homes might stay on the market longer. They find that prices are often pushed down, and many deals are falling apart.
What’s the Effect of Insurance on Home Pricing?
According to S&P Global, insurance premiums could directly affect a home’s value. Under certain conditions and assuming future excess insurance premiums are incorporated into current home values, there could be as much as a 10 percent discount on prices if premiums are expected to rise 20 percent annually for the next 20 years.According to ICE Mortgage Technology, average property insurance costs have risen nearly 70 percent over the past five years. It has outpaced growth in other mortgage-related expenses.
Insurance costs are starting to play a material role in the decision to buy a home and in home values themselves.
How Much Are Home Prices Affected by High Insurance Premiums?
According to the National Association of Realtors (NAR), premiums are increasing faster than property values. Higher premiums are bringing down home prices.As mentioned, home prices could fall as much as 10 percent due to insurance costs. But homes at risk of flooding could face even deeper price reductions. According to Realtor, for every dollar increase in a homeowner’s flood insurance premium, their home value falls by $41.
In areas with high sea-level risk, that dollar increase translates into a $250 decline in home value. If premiums go up $100, home values go down by $4,100.
Homeowners Insurance Increases
According to Realtor, almost half of the homes in America are at risk of severe or extreme damage due to environmental threats. This affects nearly $22 trillion in real estate.States are seeing insurance carriers pull back amid rising risk exposure. For example, in March 2024, State Farm said it would discontinue offering coverage for 72,000 houses and apartments in wildfire-prone California. This came less than a year after State Farm had stopped issuing new policies.
Florida, with its hurricane exposure, has also been negatively affected by insurance. In the summer of 2023, Farmers Insurance stopped offering any home, auto, or umbrella policies. This affected 100,000.
In certain regions, insurance premiums have nearly tripled over the past few years.
How Does Insurance Affect Homebuyers?
Many people are making decisions about buying homes based on where to live and which properties already have insurance policies. As a result, according to Realtor, homes sit on the market longer, prices are being forced down, and deals are falling apart.Insurance Premiums and Buyer Mortgage Financing
Most lenders and government-sponsored enterprises require borrowers to purchase homeowner’s and flood insurance where applicable.New buyers are seeing higher premiums, raising the total cost of mortgages. This makes mortgages less attractive due to higher monthly payments.
For the lender, higher costs may elevate concerns about default risk, potentially leading to lower mortgage approval rates, according to a September 2022 study by Shan Ge, Ammon Lam, and Ryan Lewis.
Affordable Housing Concerns
Some homeowners are finding homes beyond their budgets. However, insurance hikes aren’t only hurting individuals; they’re also putting pressure on developers. This could lead to fewer affordable housing projects, according to NAR.Dealing With High-Cost Homeowners Insurance
Insurance can no longer be an afterthought when buying a home. If you are serious about buying a home in a specific region, contact a licensed insurance broker or independent agent. They partner with multiple insurance companies and can help you determine which insurers operate in your area and what coverage and pricing they offer.If you’re a homeowner, be selective as to what covered claims you submit. This is especially important if you live in a high-risk market. See if you can leverage your home’s equity to finance any repairs or consider taking out a personal loan. Use your insurance for catastrophic losses only.
If you can afford it, raise your deductible. According to Net Quote, increasing a deductible from $500 to $2,000 can give you 16 percent savings. Increasing the deductible from $500 to $5,000 can save you 28 percent.
