Holly Meyer Lucas estimates that as many as 30 of the 100 homes her Jupiter, Fla., real estate team sold last year were put on the market because their owners could no longer keep up with the insurance boom dwelling.
“This is the housing crisis that no one is talking about,” Ms. Meyer Lucas said. Homes sold easily, but often to well-off cash buyers who could ditch insurance altogether because they didn’t have a mortgage that required them to carry it.
Insurance rate hikes are serious on coastal Florida, which is exposed to significant risks like hurricanes and coastal erosion, but they are also a nationwide phenomenon. Last year, premium rates for owner-occupied housing increased 11.3% on average nationally, according to data from S&P Global Market Intelligence.
Insurance rates have increased for several reasons: storms have become more frequent and severe, inflation and labor shortages have driven up the cost of repairs, and home values have increased, requiring larger insurance policies. The largest increases were in Texas, Arizona and Utah, which are among 25 states overall that saw double-digit increases last year. In some areas, including Florida, rates have increased more than 40 percent over the past five years.
This can represent a significant additional annual expense for homeowners: the typical single-family homeowner with a Freddie Mac-backed mortgage paid $1,522 in 2023, compared to $1,081 in 2018. And that’s just an average . Anecdotally, many people report seeing their premiums increase by several thousand dollars.
These higher insurance rates hurt many homeowners, forcing people out of their homes and communities while leaving others to take big risks by dropping their insurance altogether. But rising costs don’t significantly improve the country’s official inflation data, which could help explain a small part of the gap between what people think about the economy and what it looks like. looks like on paper. Economic confidence remains depressed and consumers continue to worry about high price levels, holding back the Biden administration, even though inflation has slowed and the job market is strong.
The Consumer Price Index, which is the first of two major inflation indexes released each month, uses only renter’s insurance to calculate homeowners insurance costs. Structural insurance is excluded. This is because government economists treat housing partly as financial investments and view much of the spending on it as additional investment rather than consumption.
The personal consumption expenditures index, which is the Federal Reserve’s preferred inflation indicator, measures property insurance but gives it only a tiny weight in the basket of goods and services that people consume. This is because when calculating weight, the government takes into account the amount homeowners spend on insurance and subtracts the amount insurance companies are expected to spend on claims. The result: What seems like a large expense to most people turns out to be a minimal expense for inflation accounting purposes.
While there is logic behind how the measurement is done, the result is that official inflation figures ignore or are barely changed by current large increases in home insurance costs – even though they are noticeable, even painful, for many households.
Insurance is an example of a larger reality. Headline inflation has fallen significantly, but consumers still face uncertainty over key prices that form an important part of their daily lives. Housing costs are increasing. Emergency repairs of all kinds are expensive. And it can be difficult for many to feel confident about the financial outlook when they fear facing large, hard-to-avoid expenses, like rising annual premiums.
“It’s really important for psychology — 100 percent,” Omair Sharif, founder of the research firm Inflation Insights, said of home insurance in particular. “But this amounts to having very little impact on the overall inflation data. This won’t really change things. »
Insurance rate increases could continue nationwide in 2024 as insurers still struggle to break even. Compensations have increased, in part as disasters become more frequent amid climate change. Insurer losses due to natural disasters exceeded $100 billion for the fourth consecutive year in 2023.
These are not just large, costly hurricanes, but also smaller storms that hit the Rocky Mountains, the Great Plains, and even the Midwest.
“Individually, these storms aren’t expensive, but collectively they can really start to add up,” said Tim Zawacki, senior insurance industry analyst at S&P Global Market Intelligence.
“I don’t think we can say with any certainty that rates are done rising,” Mr. Zawacki said.
Heather Kruayai, a Redfin agent in Jacksonville, Florida, was shocked to see the cost of her homeowner’s insurance spike in December, from $2,000 to $5,000. She shopped around and got an insurance policy with an annual premium of $2,500, but she said she got lucky. Ms. Kruayai said she had known people who had to sell their homes because of soaring insurance costs, and she had a client who had moved in just a year ago and was now wondering if she had to sell her house because insurance and taxes had gone up so much. a lot.
“Colleagues, friends, they all see the same thing,” Ms. Kruayai said. When buyers move to the area and realize the importance of annual expense insurance, she added, “they get a little shock.”
Florida is, in some ways, an extreme case. It allowed third parties like roofers to seek insurance benefits for their homes, a legal quirk that has led to frequent liability lawsuits. Between this and losses from storms and other disasters, insurance companies suffered heavy losses and began to pull out of Florida altogether. State lawmakers recently changed the law to ease pressure and try to attract insurers.
But bad hurricane seasons remain a risk. The state has also seen a recent increase in its population as baby boomers retire south and remote workers move, putting more people directly in the paths of storms, Latisha Nixon said. Jones, a professor at Jacksonville University who specializes in disaster law.
“It has become too expensive and unpredictable to measure risk,” she said.
High insurance costs and high condo assessments combine with high housing prices and high interest rates to make homeownership unaffordable for many people in Florida, a reality that Raphael Bostic, president of the Federal Reserve Bank of Atlanta, nodded in a recent interview with reporters. . Mr. Bostic’s Fed district includes the state.
“Regular people are very worried,” Mr. Bostic said, calling Florida’s real estate market “very difficult.”
There is some hope that things might stabilize, at least in the Sunshine State. Billy Wagner, owner of Brightway Insurance in Ponte Vedra Beach, just outside Jacksonville, said businesses are slowly coming back into the market. He expects premiums to begin to stabilize as that happens.
“People ask me how it’s going now, and I say, ‘Well, we’re still in hell, but it’s not as hot,'” he said.
But for many homeowners in Florida and across the country, the fact that annual insurance premiums can skyrocket – suddenly costing hundreds or even thousands more per year – is a financial risk and a reality that they must now take this into account in their budget.
Dennis Dawson, 60, lives with his husband in Mount Dora, a city in central Florida. The couple is well-off, earning about $300,000 a year, but in just a few years they saw their home insurance bill climb from $1,200 to $4,200. Then they were completely abandoned: their house was built in the 1940s and was deemed too old to be insured.
Mr. Dawson was able to qualify for the state-run insurance plan, but the deductibles are so high that they could face significant losses if a storm were to damage their property. He and his husband are renovating, adding weather protection and a new roof in hopes of improving their relationship with insurers.
The possibility of further increases looms large for Mr Dawson as he thinks about a future where the couple might be on a fixed income – and less able to withstand big premium increases.
“We are on the eve of retirement,” he said. “There doesn’t seem to be any respite.”