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News Climate Driven Disasters

Are Climate-Driven Disasters Threatening Your Homeownership?.....

As a real estate agent, News Climate Driven Disasters, I have concerns about the current state of the market and the implications it has for homeowners and prospective buyers. The increase in climate-driven disasters, with their frequency, severity, and cost on the rise, has prompted insurers and reinsurers to take action to mitigate their risk exposure. Unfortunately, this has led to some negative consequences for the housing market.

News Climate Driven Disasters - Climate Crisis: Insurance Exodus & Mortgage Defaults

Insurers like State Farm are choosing to withdraw policies altogether, while others are implementing payout limits or significantly raising rates for homeowners. In states like Florida, 10 insurance companies have ceased providing homeowner coverage in the past three years due to losses from hurricanes and high levels of insurance fraud and litigation. This trend threatens the housing security of millions of low- and middle-income homeowners residing in climate-vulnerable areas.

The consequences of this insurance exodus and steep rate hikes are not limited to a few states. As climate-related disasters become more frequent and severe, impacting Americans across the country, we can expect this trend to spread. This situation creates what we can call “insurance deserts” – areas with a scarcity of insurance providers and exorbitant premiums from the few that remain. 

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Since most mortgage lenders require borrowers to carry property insurance, homeowners who lose coverage may default on their mortgages. Prospective buyers may also find it challenging to secure a mortgage without affordable home insurance.This scenario ultimately leads to a form of climate gentrification, where only homeowners who can purchase without a mortgage can afford properties in uninsurable areas. These homeowners take a gamble, hoping that their homes will be spared from disaster, knowing that they will be solely responsible for rebuilding if calamity strikes.

Rising Insurance Rates Deepen Homeownership Inequality

Despite the risks associated with not carrying home insurance, we are already witnessing this phenomenon. In Florida, an estimated 13% of homes are not covered by property insurance, and this percentage is likely to increase as premiums continue to rise. This situation affects not only the wealthy but also long-term homeowners who have paid off their mortgages, often elderly individuals on fixed incomes. These homeowners find themselves in dire circumstances, lacking the means to relocate or rebuild if their uninsurable homes are damaged or destroyed.

Moreover, those impacted by rate hikes are often financially strained. Even a small increase in insurance rates can force homeowners to sell their properties and enter an unaffordable rental market. For aspiring first-time homeowners, the combination of high home insurance rates, soaring home prices, and steep mortgage interest rates pushes homeownership further out of reach.

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The consequences of these developments will likely exacerbate America’s existing racial wealth gap. Homeownership plays a crucial role in building wealth, and it has traditionally served as an economic stepping stone passed down through generations. However, a study by the Federal Reserve Bank of Minneapolis revealed that in 2021, 29% fewer Black families owned homes compared to White families. Rising insurance rates will make homeownership even more unattainable for Black households, preventing them from purchasing their first homes or maintaining ownership of their current residences.

Home Insurance Crisis Threatens Vulnerable Communities

To compound matters, communities of color are more likely to reside in areas where home insurance rates are expected to rise significantly. Historical discriminatory housing policies have resulted in lower-income and minority communities being located in areas at higher risk of flooding. 

These families often live in older homes that are less able to withstand extreme weather events. Consequently, while wealthier residents can rebuild and return to bigger and more expensive homes after a disaster, others face permanent displacement.

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The implications of home insurance deserts on the housing security of vulnerable Americans are only beginning to emerge. States like California, Florida, and Louisiana serve as warning signs, indicating what lies ahead. The policy decisions made by state regulators, as well as local and federal leaders, will determine the housing security of millions of Americans residing in increasingly vulnerable and uninsurable parts of the country.

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Robert Lesher

Keller Williams Realty

Cell:(302) 604-9234 Preferred

Office: (302) 360-0300

37169 Rehoboth Avenue Rehoboth Beach, DE 19971

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