Mortgage struggles on the horizon as Florida home insurance problems continue

Home Insurance - Mortgage calculations - Florida Flag

As the coverage crisis continues in the state, there is a risk of a real estate market downturn.

As the home insurance crisis drags on in Florida, the risk could increase for a downturn in the state’s real estate market, with a threat of mortgage struggles.

Major insurers have been stepping out of the state and have stopped selling new policies.

Home insurance customers in Florida are paying the highest premiums in the United States. Residents of the state pay an average $6,000 annual premium to private insurers according to the latest Insurance Information Institute (I.I.I.) data. The average annual premium nationally is much lower at $1,700, according to data released by Barron’s and CNN Business.

Home insurance - Person looking stressed

It is rare for property owners to be able to afford to self-insure against the cost of damage or loss of a house. Moreover, mortgage lenders require coverage to protect the collateral for the loan.

As home insurance coverage becomes increasingly cost prohibitive, it means that there is a possibility that mortgages will become notably harder to obtain. Should that be the case, the real estate sector in the state could certainly struggle.

When home insurance is too expensive to afford, it means that mortgages can also drift out of reach.

“If you don’t have an insurance policy, it’s basically impossible to take out a mortgage,” said Wharton School of Business (University of Pennsylvania) professor of real estate and finance, Benjamin Keys, an economist. “And given the important role that financing plays in the housing market, without a functioning insurance market you don’t have a functioning mortgage market, you don’t have a functioning housing market.”

Scientists predict that extreme weather events will worsen in both severity and frequency due to the growing climate change risk. Because of this, “there are more people living in harm’s way, the severity of the disaster is more extreme and the cost of repairs has gone up,” explained Keys. “A number of years with large storms and large claims has put some private insurers out of business and led others to simply leave the state.”

Keys went on to underscore the impact on home insurance companies. “Insurers have also been really concerned that a portion of their elevated claims is due to fraud. And they were successful in pressuring the state Legislature to pass sweeping reform that makes it much more insurer-friendly on the fraud front. But in spite of these changes going through, insurers have not returned to Florida on any large scale,” he said.

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