There is an incredibly risky, two-pronged trend in the housing market. Insurance companies refuse to cover properties because they are located in severe weather zones or because the housing stock is old. And banks won’t give you a mortgage because of the same risk. The result is a further divided housing market: traditional homes that can be insured and mortgaged and a growing segment of properties that can only be sold for cash and at a deep discount, if at all.
Three years ago, an estimated $1.6 trillion in real estate value from uninsured homes was at stake and 6.1 million homeowners were uninsured, according to a report published this year by the Consumer Federation of America. It’s only gotten worse since then, even though that’s the most recent data available. And yet such houses can still be sold. According to Axios“Uninsurable homes are still changing hands in the housing market.” You can’t get a mortgage on it, but you can pay cash and likely get a big discount, the publication reported.
I don’t need to tell you how much risk there is in owning an uninsured property. This may be less true if you’re a billionaire who wants a beautiful view and has money to spend. But for typical Americans living in California, Florida, Texas or other states vulnerable to severe weather, not so much. More often than not, these are low-value homes and low-income households that remain uninsured. They may choose to go without insurance if they cannot afford the rapidly rising premiums or if they simply cannot find an insurer that offers this coverage. Still, places like California and Florida have their own forms of coverage of last resort, whether it’s the FAIR Plan for the former and Citizens for the latter.
What you need to know is that there is an insurance crisis happening across the country, especially in the states mentioned above. In California, property insurers are limiting the number of policies they write or refusing to write new ones. In Florida, several home insurers have fled the state. Insurance issues have made things much more difficult for homeowners and homebuyers dealing with skyrocketing prices and mortgage rates.
The president of CoreLogic’s global insurance solutions company, Garret Gray, once told me that his Los Angeles canyon home was virtually uninsurable. “It has a very poor CoreLogic brand score,” he said. He almost backed out of the deal before making some changes to make the house insurable. The thing is, some people might not back out of the deal. Instead, they can try to get a better deal from the seller.
Then there’s Jason Damm, an assistant professor of professional finance practice at the University of Miami and a landlord in the city. He once told me that after he renewed his insurance earlier that year, his premium went up. That was before the insurer sent him a notice that the state was withdrawing and his policy was canceled. At the time, he had no insurance and had not decided what to do because it was expensive and difficult to find coverage. “I don’t have insurance on the house, which is quite dangerous,” Damm previously said. ‘I’ve been looking. It’s very expensive, so I’m trying to decide what to do. It’s a huge problem. I mean, I don’t know what I’m going to do with it, whether I’m going to try to find a policy or just go without insurance.