Shutdown Could Leave Homebuyers Without Flood Insurance: NAR

The shutdown could cut off a measure that included an extension to the National Flood Insurance Program, according to an analysis.

A car rives though the flooded street after Hurricane Milton, in Punta Gorda, Fla., on Oct. 10, 2024. Chandan Khanna/AFP via Getty Images

Potential homeowners seeking to buy in high flood-risk areas of the country could be forced to proceed to their closings without flood insurance.

An analysis from the National Association of Realtors (NAR) indicates that Congress’s failure to meet the Sept. 30 deadline to pass the national budget could adversely affect a measure that included an extension to the National Flood Insurance Program (NFIP).

“Under normal conditions, lenders will require flood insurance before finalizing the loan if the property is in a Special Flood Hazard Area (SFHA), and the standard homeowner’s insurance policy does not cover flooding,” NAR senior economist and director of real estate research Nadia Evangelou stated in the NAR analysis.

However, she added, without the NFIP, homebuyers would need to purchase flood insurance on the private market, which often limits the areas where coverage is available across the United States. During NFIP lapses, many lenders do suspend the requirement to purchase flood insurance.

Evangelou cautions that if the NFIP program were shut down permanently, the result could be devastating to the housing market and the economy.

According to the NAR, the NFIP provides $1.3 trillion in flood insurance to more than 4.7 million policyholders in 23,000 communities across America.

“The National Flood Insurance Program doesn’t just protect homes, it supports local economies and jobs,” Shannon McGahn, NAR executive vice president and chief advocacy officer, said in the analysis.

McGahn explained that since most lenders require flood insurance in FEMA high-risk zones, the FNIP is able to fill the gap for buyers who would otherwise find it difficult to secure coverage in the private sector.

NAR research shows FNIP supports almost a half-million home sales each year and contributed more than $70 billion to the U.S. economy. “Every dollar spent on mitigation saves six dollars in future losses,” McGahn added.

NFIP policies typically cover $250,000 in building replacement cost, compared with Federal Emergency Management Agency, which averages $4,000.

Meanwhile, the National Weather Service is predicting a possible coastal storm off the Southeast coast this weekend that could bring flooding and dangerous rip currents, gusty winds, and heavy rain all through the Eastern Coast. In addition, widespread rain and thunderstorms could produce flash flooding through early next week over the Southwest and Four Corners (the geographical marker in the southwestern United States where Arizona, Colorado, New Mexico, and Utah meet).

The National Severe Storms Laboratory (NSSL), a federal research lab based in Oklahoma, indicated that flash floods are the most dangerous type of floods due to their speed and destructive power. The NSSL website explains that flash floods can happen anywhere in the U.S., and densely populated areas, as well as those near water are typically at a higher risk for this type of flooding.

PuroClean, a national restoration firm, named Florida the number-one state in the United States prone to flooding, with more than 2.7 million people living in flood zones, followed by Texas, Louisiana, California, and New Jersey. New York, North Carolina, South Carolina, Mississippi, and Missouri round out the top 10.

With so much of the nation at risk for flooding, the NAR fears that homebuyers, sellers, and entire communities could be facing financial crises. NAR research discovered that during an extended lapse in insurance, as many as 40,000 transactions per month were stalled or cancelled.

Periodically, Congress is tasked with reauthorizing the NFIP to issue new and renewal flood insurance policies. However, in the past, when Congress failed to pass a continuing government  spending resolution with an NFIP extension, the program lapsed, adversely affecting some 1,400 property transactions a day.

While the budget delay halts the NFIP’s ability to issue new policies or renewals, the NAR indicated that some existing policies could remain active with a 30-day grace period, during which they can be transferred to new homeowners.