Homeowner’s Insurance Premiums Skyrocket: Forcing Homeowners to Consider Moving

While states like Florida, California and Louisiana have seen climbing insurance costs for years due to severe weather, flooding and hurricanes, other states, Colorado and Illinois are good examples, are seeing climbing rates as well due to hailstorms and wildfires. 

As homeowner’s insurance premiums skyrocket, for some policyholders, the math no longer makes sense forcing them to consider selling their home and moving.

“In coastal and wildfire-prone states, I’ve worked with customers who adored their homes but couldn’t come to grips with annual premiums that were growing by thousands of dollars,” said Evan Harlow, a Maui-based real estate agent in a recent Realtor.com article. “It’s not unusual these days for sellers to factor ‘insurance math’ right alongside property taxes and mortgage rates when deciding where and when to move.”

The problem for many homeowners considering a move is where to they move to in order to avoid massive insurance premiums. 

Insurance costs have skyrocketed in many metros over the last few years. According to the Realtor.com® Housing and Climate Risk Report, the estimated average premium for a single-family home in Miami is now $22,700 a year.This breaks down to insurance costs that are 3.7% of the median $614,000 home value in Miami. Industry experts say that once premiums exceed 2% of the home’s value, insurance costs eventually become unsustainable. 

According to Realtor.com five metros have already crossed that threshold. Miami, New Orleans, Cape Coral, FL, Baton Rouge, LA, and Oklahoma City, all have average premiums that exceed 2% of the median home value. 

In addition, the Realtor.com report found that many homeowners are underinsured when it comes to flood risk. Roughly 6 million homes, valued at $3.4 trillion, face a severe or extreme risk of flood damage over the next 30 years and many of these homeowners do not carry flood insurance.

These factors are pushing homeowners to sell as their insurance bill becomes more unmanageable. 

“With insurance rates ever increasing, we have seen the increase in the number of homeowners who are in a situation where it would be more economical to sell the house rather than to remain,” explained Doug Van Soest, founder of SoCal Home Buyers in the Realtor.com

As insurance costs continue to rise, some homeowners are forgoing insurance altogether, a risky move unless you can easily afford to cover the cost of rebuilding your home after a disaster strikes. If you have a mortgage on your home this is not an option as your lender will require insurance coverage to protect their investment. 

Federal policymakers have started to pay attention to the cost of insurance and how it can impact the ability of homebuyers to purchase a home. Recently Federal Reserve Chairman Jerome Powell warned of the rise of “mortgage deserts,” which are regions where the retreat of insurers make it very difficult to buy or sell a home if financing is required.

One way that many homeowners who can no longer afford insurance coverage are going is buying a condo. Downsizing into a condo offloads some of the insurance risk to the HOA master policy which covers the cost of rebuilding after a major disaster. While the cost of HOA master policies has also gone up in recent years, they are usually still affordable as it is spread across so many condo units. 

Other homeowners are moving more inland to lower their insurance costs. The Midwest and interior regions of the South tend to be more affordable. While insurance costs may be less in these areas, it is starting to climb. State Farm recently raised homeowner rates roughly 30% in Illinois which will add up to $750 to the average premium per year. 

“Moving is not risk-free,” warned Van Soest in the recent Realtor.com article. “To counter any savings realized on insurance premiums, higher property tax, more cost of living, and even reduced choice of homes can counter it.”

Harlow urged homebuyers in the recent Realtor.com to take a broad view of what affordability really means to them. “I’m always counseling sellers to be holistic in their view of value: Don’t just ask, ‘What’s my premium?’ but ‘What’s my actual monthly cost of living in this new place?’”