America's coastal cities are a hidden time bomb

[Villanelle]

It seems like we are in a window--how large a window is hard to say--where these homes (and the land) still have all or most of their value. 

We are selling our CA rental.  There are many reasons, but insurance and climate change are just one of them.  We haven't (yet) seen huge insurance increases.  And our property is inland and up hill so it is unlikely to flood.  But fire is a real risk.  It feels like right now, we can still get a premium for SoCal living.  I don't expect that to last forever, as the weather continues to change, making it less desirable, and the insurance prices continue to increase.  Happy to be getting out this summer. 

[Villanelle]

As many predicted on this thread, insurance rates are starting to affect home values: Insurers such as State Farm and Allstate are leaving fire- and flood-prone areas. Home values could take a hit

Porter said First Street Foundation’s research in California concluded that “the moment that an individual gets a non-renewal letter from the private insurance market, they essentially lose 12% of their property value.”

I think this is the first time I've seen this quantified so directly. On a median priced home in CA this is an immediate $100k drop, all because of a letter in the mail.

It makes sense.

I find it fascinating how "sticky" real estate prices are. Rising mortgage and insurance rates should lower prices, because they affect the total cost of ownership. However, prices have not fallen proportionally to these costs.

Perhaps the sales clearing today are to people who strongly believe they will be able to refi the mortgage soon, and their insurance will stay flat for the next several years.

How long will it take to clear the market of this group of buyers? Stated another way - how long can mortgages and insurance stay high until expectations become locked in?

I think this quote from the article helps explain it:

“Risk management does not come into play until it’s entirely too late when it comes to individual personal property purchasing,” Kevelighan said. “It comes into play when the mortgage provider needs you to go get it.”

“And that’s the first time when a consumer even begins to think about where they’re living and what the risks might be,” he said. “The cost reflects that risk. That should be an alarm to tell them that they’re living in a risky place and then ask themselves: How could I reduce that risk? Or do I need to think about living somewhere else?”

A lot of people really want to live in the forest or right on the coast. Yet only very recently has insurance become a major factor, and it will take time for this new reality to sink in. At some point collective views on these high risk areas will shift and be seen as less desirable. In the meantime, the market will continue to educate homeowners.

I suppose as a cheap bastard I cannot imagine people making a big real estate or automotive purchase without thinking through the costs of insurance, taxes, and energy. In my mind, all these costs are fairly transparent, and anyone in these markets should be aware of the rising trend.

Reality for other people, however, looks a lot more emotion-driven and impulsive. Sort of like the various "house hunters" reality TV shows where the ditzy buyers pick the house with the brightest paint color because they like all the "natural light" and it's $150,000 more than the house with the beige interior. We never hear about how their finances are going after making that choice on a whim, within a week, after looking at only 3 houses.

Apparently the insurance actuaries are a bit irrational too if they are only now incorporating climate change into their pricing after suffering staggering losses in Western forests and Gulf coasts.

Perhaps the classic saying should be rephrased: Prices can remain irrational long enough to trick lots of people into buying something which will leave them insolvent.

It doesn't entirely negate your post, but your contempt for the House Hunters may be slightly misplaced.  The show is almost entirely fiction.  The house hunters must already be in escrow on a property when filming.  They've already selected a home.  Often the other options aren't even properties that are for sale.  They may be the home of a friend or neighbor. 

Their real search included different homes, and they might have looked at dozens of properties. That beige house they reject on camera was never an option, but they have to come up with something bad to say about it. 

[uniwelder]

An interesting discussion on Bogleheads about the current realities of home insurance for a single family home in south Florida: https://www.bogleheads.org/forum/viewtopic.php?t=424251

Many people are moving to home insurance that does not cover storm/wind/surge damage apparently.

Interesting thread, thanks for the link. Lots of comments from people essentially saying insurance companies are signaling that your home is not suitable for long-term habitation, so move. And yet it seems OP, like so many in their situation, doesn't see it. For example, the premise of the question about paying the higher premium vs. maybe saving money by self insuring. Essentially asking if one can outsmart the insurance companies -- really ridiculous when you think about it because it's a bet on getting lucky and beating the odds in an unknowable future.

The OP is missing the forest for the trees. All of that talk about "land value" if the house is destroyed but this poster brings up the obvious.

If the house were totaled in a major storm, I suspect the value of the land as a building lot would plummet. That land value might be a valid estimate now, before the storm. It could be far less afterward.

+1  I was surprised reading through the Bogleheads thread that there were only two people warning of a huge drop in land value when OP was talking about just selling if the house gets destroyed, citing their house value is relatively small compared to the current land value, thus implying they could recover most of the cost.

[bacchi]

It doesn't entirely negate your post, but your contempt for the House Hunters may be slightly misplaced.  The show is almost entirely fiction.

https://youtu.be/ejwoUeKhFn4?si=ci6pBVQmeQbZC8ty&t=10

[RWD]

An interesting discussion on Bogleheads about the current realities of home insurance for a single family home in south Florida: https://www.bogleheads.org/forum/viewtopic.php?t=424251

Many people are moving to home insurance that does not cover storm/wind/surge damage apparently.

Interesting thread, thanks for the link. Lots of comments from people essentially saying insurance companies are signaling that your home is not suitable for long-term habitation, so move. And yet it seems OP, like so many in their situation, doesn't see it. For example, the premise of the question about paying the higher premium vs. maybe saving money by self insuring. Essentially asking if one can outsmart the insurance companies -- really ridiculous when you think about it because it's a bet on getting lucky and beating the odds in an unknowable future.

The OP is missing the forest for the trees. All of that talk about "land value" if the house is destroyed but this poster brings up the obvious.

If the house were totaled in a major storm, I suspect the value of the land as a building lot would plummet. That land value might be a valid estimate now, before the storm. It could be far less afterward.

+1  I was surprised reading through the Bogleheads thread that there were only two people warning of a huge drop in land value when OP was talking about just selling if the house gets destroyed, citing their house value is relatively small compared to the current land value, thus implying they could recover most of the cost.

Insurance probably isn't helping them much anyway then, right? As that would only pay for the replacement value of the house.

[Telecaster]

It doesn't entirely negate your post, but your contempt for the House Hunters may be slightly misplaced.  The show is almost entirely fiction.  The house hunters must already be in escrow on a property when filming.  They've already selected a home.  Often the other options aren't even properties that are for sale.  They may be the home of a friend or neighbor. 

Their real search included different homes, and they might have looked at dozens of properties. That beige house they reject on camera was never an option, but they have to come up with something bad to say about it.

Some friends were on House Hunters.   They were planning on building a house and only needed to buy a house as a stop gap in the interim.  They were actually shopping for vacant lots. 

As an aside, I met a producer for House Hunters at an airport bar.   Super nice woman.  I told her I wanted to see episode where the buyers totally hated their choice and wished they had gone with another property, and the problems with the current property were causing friction in their marriage.  She just laughed.   

[NorCal]

An interesting discussion on Bogleheads about the current realities of home insurance for a single family home in south Florida: https://www.bogleheads.org/forum/viewtopic.php?t=424251

Many people are moving to home insurance that does not cover storm/wind/surge damage apparently.

Interesting thread, thanks for the link. Lots of comments from people essentially saying insurance companies are signaling that your home is not suitable for long-term habitation, so move. And yet it seems OP, like so many in their situation, doesn't see it. For example, the premise of the question about paying the higher premium vs. maybe saving money by self insuring. Essentially asking if one can outsmart the insurance companies -- really ridiculous when you think about it because it's a bet on getting lucky and beating the odds in an unknowable future.

Self insuring and underinsuring seem like a universally bad idea here.  The underlying premise is that homeowners can judge risk better than an insurance actuary.  I'm going to go out on a limb and say that's not how things work. 

[ChpBstrd]

An interesting discussion on Bogleheads about the current realities of home insurance for a single family home in south Florida: https://www.bogleheads.org/forum/viewtopic.php?t=424251

Many people are moving to home insurance that does not cover storm/wind/surge damage apparently.

Interesting thread, thanks for the link. Lots of comments from people essentially saying insurance companies are signaling that your home is not suitable for long-term habitation, so move. And yet it seems OP, like so many in their situation, doesn't see it. For example, the premise of the question about paying the higher premium vs. maybe saving money by self insuring. Essentially asking if one can outsmart the insurance companies -- really ridiculous when you think about it because it's a bet on getting lucky and beating the odds in an unknowable future.

Self insuring and underinsuring seem like a universally bad idea here.  The underlying premise is that homeowners can judge risk better than an insurance actuary.  I'm going to go out on a limb and say that's not how things work.

Agreed. I would self-insure if I could build an elevated solid concrete house with steel shutters at least a few miles inland. However, these Floridians are talking about slab-on-grade stick houses with asphalt-over-OSB roofs.

I'm trying to figure out the angle for which this makes sense. Are they taking out mortgages, dropping coverage, and then resisting attempts at foreclosure the whole time? Otherwise they're YOLOing the entire cost to rebuild their structures, which seems like a foolish and desperate attempt to live in Florida instead of, say, inland Georgia.

[NorCal]

An interesting discussion on Bogleheads about the current realities of home insurance for a single family home in south Florida: https://www.bogleheads.org/forum/viewtopic.php?t=424251

Many people are moving to home insurance that does not cover storm/wind/surge damage apparently.

Interesting thread, thanks for the link. Lots of comments from people essentially saying insurance companies are signaling that your home is not suitable for long-term habitation, so move. And yet it seems OP, like so many in their situation, doesn't see it. For example, the premise of the question about paying the higher premium vs. maybe saving money by self insuring. Essentially asking if one can outsmart the insurance companies -- really ridiculous when you think about it because it's a bet on getting lucky and beating the odds in an unknowable future.

Self insuring and underinsuring seem like a universally bad idea here.  The underlying premise is that homeowners can judge risk better than an insurance actuary.  I'm going to go out on a limb and say that's not how things work.

Agreed. I would self-insure if I could build an elevated solid concrete house with steel shutters at least a few miles inland. However, these Floridians are talking about slab-on-grade stick houses with asphalt-over-OSB roofs.

I'm trying to figure out the angle for which this makes sense. Are they taking out mortgages, dropping coverage, and then resisting attempts at foreclosure the whole time? Otherwise they're YOLOing the entire cost to rebuild their structures, which seems like a foolish and desperate attempt to live in Florida instead of, say, inland Georgia.

You're assuming they're being thoughtful about the decision making process.

Building your highly fortified home would protect you from today's problems of hurricanes.  It won't help when you start seeing saltwater intrusion into municipal water supplies and well water.  That's the problem for a few years down the road.  Albeit some municipalities will be massively impacted and others will be entirely unaffected. 

[Mr. Green]

An interesting discussion on Bogleheads about the current realities of home insurance for a single family home in south Florida: https://www.bogleheads.org/forum/viewtopic.php?t=424251

Many people are moving to home insurance that does not cover storm/wind/surge damage apparently.

Interesting thread, thanks for the link. Lots of comments from people essentially saying insurance companies are signaling that your home is not suitable for long-term habitation, so move. And yet it seems OP, like so many in their situation, doesn't see it. For example, the premise of the question about paying the higher premium vs. maybe saving money by self insuring. Essentially asking if one can outsmart the insurance companies -- really ridiculous when you think about it because it's a bet on getting lucky and beating the odds in an unknowable future.

Self insuring and underinsuring seem like a universally bad idea here.  The underlying premise is that homeowners can judge risk better than an insurance actuary.  I'm going to go out on a limb and say that's not how things work.

Agreed. I would self-insure if I could build an elevated solid concrete house with steel shutters at least a few miles inland. However, these Floridians are talking about slab-on-grade stick houses with asphalt-over-OSB roofs.

I'm trying to figure out the angle for which this makes sense. Are they taking out mortgages, dropping coverage, and then resisting attempts at foreclosure the whole time? Otherwise they're YOLOing the entire cost to rebuild their structures, which seems like a foolish and desperate attempt to live in Florida instead of, say, inland Georgia.

You're assuming they're being thoughtful about the decision making process.

Building your highly fortified home would protect you from today's problems of hurricanes.  It won't help when you start seeing saltwater intrusion into municipal water supplies and well water.  That's the problem for a few years down the road.  Albeit some municipalities will be massively impacted and others will be entirely unaffected.

Miami is already dealing with this. I just read an article about it. One of the suburb towns just north of Miami has already shut down 6 of 8 wells due to saltwater intrusion. Turns out draining the swamps wasn't such a good idea.

[ChpBstrd]

‘What, and destroy $2 billion worth of property?’ Mass. beach community undaunted after storm washes away 3-day-old $600,000 sand dune project

A Massachusetts beach community is scrambling after a weekend storm washed away $600,000 in sand that was trucked in to protect homes, roads and other infrastructure.

“The state will not contribute any money to the rebuilding of dunes. That is the bottom line,” Saab said. “Everybody is angry and upset. We can’t survive without sand rebuilding the dunes and can’t survive paying out of our pocket after every storm.”

Is anyone old enough to remember when Al Gore was considered an alarmist for predicting this sort of thing?

[AnotherEngineer]

‘What, and destroy $2 billion worth of property?’ Mass. beach community undaunted after storm washes away 3-day-old $600,000 sand dune project

“The state will not contribute any money to the rebuilding of dunes. That is the bottom line,” Saab said. “Everybody is angry and upset. We can’t survive without sand rebuilding the dunes and can’t survive paying out of our pocket after every storm.”

To rephrase: "This town are too expensive to remain viable, so we demand the state to subsidize our vacation homes and Airbnb businesses." State funds can be better spent (say on the education funding crises that every place seems to have) than to try to keep these place sustainable. 

My take is that we give up on most beach "renourishment" and shift our building on the coast or barrier islands back to the rustic cabins of the 30's that were expected to be rebuilt or moved after a big storm or beach erosion.

Hypocrisy check: I leave five miles from the ocean in hurricane country in a stick frame house.

[Askel]

‘What, and destroy $2 billion worth of property?’ Mass. beach community undaunted after storm washes away 3-day-old $600,000 sand dune project

I was curious about this and looked at google maps.  These homes appear to be built on a narrow strip of sand between the ocean and a swamp.  Even ignoring climate change, I find it hilarious that these people are shocked the beach is washing away.   

To make it even funnier, that Tom Saab dude is apparently a poorly rated landlord who's probably over invested in it.   

https://maps.app.goo.gl/dwyWTidetwUktdHn9

[LaineyAZ]

‘What, and destroy $2 billion worth of property?’ Mass. beach community undaunted after storm washes away 3-day-old $600,000 sand dune project

A Massachusetts beach community is scrambling after a weekend storm washed away $600,000 in sand that was trucked in to protect homes, roads and other infrastructure.

“The state will not contribute any money to the rebuilding of dunes. That is the bottom line,” Saab said. “Everybody is angry and upset. We can’t survive without sand rebuilding the dunes and can’t survive paying out of our pocket after every storm.”

Is anyone old enough to remember when Al Gore was considered an alarmist for predicting this sort of thing?

Yep, I am old enough.  And it may be perverse, but I wonder in the afterlife we get to turn to these original climate change deniers and say, "Told you so, you dumbasses."  It's petty but I'd like just one opportunity to see if, when the SHTF, even one of them will ever admit they were wrong. 

[former player]

‘What, and destroy $2 billion worth of property?’ Mass. beach community undaunted after storm washes away 3-day-old $600,000 sand dune project

A Massachusetts beach community is scrambling after a weekend storm washed away $600,000 in sand that was trucked in to protect homes, roads and other infrastructure.

“The state will not contribute any money to the rebuilding of dunes. That is the bottom line,” Saab said. “Everybody is angry and upset. We can’t survive without sand rebuilding the dunes and can’t survive paying out of our pocket after every storm.”

Is anyone old enough to remember when Al Gore was considered an alarmist for predicting this sort of thing?

Yep, I am old enough.  And it may be perverse, but I wonder in the afterlife we get to turn to these original climate change deniers and say, "Told you so, you dumbasses."  It's petty but I'd like just one opportunity to see if, when the SHTF, even one of them will ever admit they were wrong.

I wonder if they've just moved on to vaccine denial and have forgotten anything they ever said about climate change?

All the trans enthusiasts are going to be the same now the shit is beginning to hit the fan about the damage transition does to kids - except for the parents who've already trans their kids and are going to have to deny that it does any damage until the death because its psychologically their only option.

MOD NOTE: Please don't bring up unrelated transphobia.

[Psychstache]

‘What, and destroy $2 billion worth of property?’ Mass. beach community undaunted after storm washes away 3-day-old $600,000 sand dune project

A Massachusetts beach community is scrambling after a weekend storm washed away $600,000 in sand that was trucked in to protect homes, roads and other infrastructure.

“The state will not contribute any money to the rebuilding of dunes. That is the bottom line,” Saab said. “Everybody is angry and upset. We can’t survive without sand rebuilding the dunes and can’t survive paying out of our pocket after every storm.”

Is anyone old enough to remember when Al Gore was considered an alarmist for predicting this sort of thing?

Yep, I am old enough.  And it may be perverse, but I wonder in the afterlife we get to turn to these original climate change deniers and say, "Told you so, you dumbasses."  It's petty but I'd like just one opportunity to see if, when the SHTF, even one of them will ever admit they were wrong.

I wonder if they've just moved on to vaccine denial and have forgotten anything they ever said about climate change?

All the trans enthusiasts are going to be the same now the shit is beginning to hit the fan about the damage transition does to kids - except for the parents who've already trans their kids and are going to have to deny that it does any damage until the death because its psychologically their only option.

Going to need you to show your work on this one.

[Villanelle]

‘What, and destroy $2 billion worth of property?’ Mass. beach community undaunted after storm washes away 3-day-old $600,000 sand dune project

A Massachusetts beach community is scrambling after a weekend storm washed away $600,000 in sand that was trucked in to protect homes, roads and other infrastructure.

“The state will not contribute any money to the rebuilding of dunes. That is the bottom line,” Saab said. “Everybody is angry and upset. We can’t survive without sand rebuilding the dunes and can’t survive paying out of our pocket after every storm.”

Is anyone old enough to remember when Al Gore was considered an alarmist for predicting this sort of thing?

Yep, I am old enough.  And it may be perverse, but I wonder in the afterlife we get to turn to these original climate change deniers and say, "Told you so, you dumbasses."  It's petty but I'd like just one opportunity to see if, when the SHTF, even one of them will ever admit they were wrong.

I wonder if they've just moved on to vaccine denial and have forgotten anything they ever said about climate change?

All the trans enthusiasts are going to be the same now the shit is beginning to hit the fan about the damage transition does to kids - except for the parents who've already trans their kids and are going to have to deny that it does any damage until the death because its psychologically their only option.

Well, this took an unexpected turn. 

[former player]

‘What, and destroy $2 billion worth of property?’ Mass. beach community undaunted after storm washes away 3-day-old $600,000 sand dune project

A Massachusetts beach community is scrambling after a weekend storm washed away $600,000 in sand that was trucked in to protect homes, roads and other infrastructure.

“The state will not contribute any money to the rebuilding of dunes. That is the bottom line,” Saab said. “Everybody is angry and upset. We can’t survive without sand rebuilding the dunes and can’t survive paying out of our pocket after every storm.”

Is anyone old enough to remember when Al Gore was considered an alarmist for predicting this sort of thing?

Yep, I am old enough.  And it may be perverse, but I wonder in the afterlife we get to turn to these original climate change deniers and say, "Told you so, you dumbasses."  It's petty but I'd like just one opportunity to see if, when the SHTF, even one of them will ever admit they were wrong.

I wonder if they've just moved on to vaccine denial and have forgotten anything they ever said about climate change?

All the trans enthusiasts are going to be the same now the shit is beginning to hit the fan about the damage transition does to kids - except for the parents who've already trans their kids and are going to have to deny that it does any damage until the death because its psychologically their only option.

Going to need you to show your work on this one.

https://www.england.nhs.uk/publication/clinical-policy-puberty-suppressing-hormones/

https://onlinelibrary.wiley.com/doi/10.1111/apa.17150
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5694455/

https://www.youtube.com/watch?v=9oQdwKxtqaA

[Dicey]

Last night I was watching HGTV's "Rock the Block - Revenge Edition" or some such BS. The goal is for the teams to add as much value as they can to "their" unit. The four units are side-by-side on a waterway in FLORIDA! I kept thinking that the buyers weren't going to be able to get insurance, much less coverage that's "affordable". In a few years, they will potentially be literally (and perhaps even figuratively) underwater. My brain kept screaming: Why???

[bacchi]

Last night I was watching HGTV's "Rock the Block - Revenge Edition" or some such BS. The goal is for the teams to add as much value as they can to "their" unit. The four units are side-by-side on a waterway in FLORIDA! I kept thinking that the buyers weren't going to be able to get insurance, much less coverage that's "affordable". In a few years, they will potentially be literally (and perhaps even figuratively) underwater. My brain kept screaming: Why???

Insanity.

Citizens holds over 1M policies, grew 65% last year (!), and is in the top 10 house insurers nationwide. The Florida leg wants to ban Citizens from insuring 2nd homes, which could decimate vacation communities.

DeSantis has blamed high rates and insurers leaving the state on ESG. Lol.

[bacchi]

I recently heard a story (on NPR, not sure if that matters) about insurance companies in Florida and their purchase of "re-insurance". This is insurance for insurance companies, in case a severe weather event occurs. There's a proposal that they can purchase less re-insurance, and the Feds will cover the shortfall.

So for all of you who are NOT on the coasts, you may indeed be covering our losses. Great for me, very bad for the rest of the system.

We already do this for flood insurance to some extent. It floods, they rebuild, it floods, they rebuild, etc., etc., all on the government's dime.

The question is, then, how long can this continue with climate change? A federal bail out might work the first time and the second time but, eventually, the rest of the nation will get tired of rebuilding beach houses and houses in the woods.

[2sk22]

I recently heard a story (on NPR, not sure if that matters) about insurance companies in Florida and their purchase of "re-insurance". This is insurance for insurance companies, in case a severe weather event occurs. There's a proposal that they can purchase less re-insurance, and the Feds will cover the shortfall.

So for all of you who are NOT on the coasts, you may indeed be covering our losses. Great for me, very bad for the rest of the system.

Reinsurance, as such, is not a new concept - its been around forever. See https://www.theactuary.com/archive/old-articles/part-3/2012/09/21/reinsurance-brief-history

What has changed is that reinsurers have started considering climate risks when pricing reinsurance. See: https://www.spglobal.com/ratings/en/research/articles/210923-global-reinsurers-grapple-with-climate-change-risks-12116706

Unmodelled risks and the inherent difficulties in attributing extreme events to climate change create the risk that climate change may not be fully reflected in catastrophe modelling, particularly in the short term.

[FINate]

Continued insurance troubles: California’s largest home insurer won’t renew 72,000 policies

Yet they really buried the lede on this one. The real story isn't continued non-renewal of some policies, but rather this from the *very* bottom of the article:

In its letter to the commissioner, State Farm General Insurance — State Farm's branch covering home insurance in California — acknowledged its financial troubles and said it was dedicated to improving its situation. Regulations in Illinois — where State Farm is headquartered — require the company to give state regulators a plan on how to restore the company's financial condition by April 15. If it does not improve, State Farm General could risk its home insurance no longer being accepted as a mortgage collateral, according to the letter.

If the state's largest insurer becomes longer accepted as mortgage collateral this would be extremely disruptive to the housing market in CA.

[Villanelle]

Continued insurance troubles: California’s largest home insurer won’t renew 72,000 policies

Yet they really buried the lede on this one. The real story isn't continued non-renewal of some policies, but rather this from the *very* bottom of the article:

In its letter to the commissioner, State Farm General Insurance — State Farm's branch covering home insurance in California — acknowledged its financial troubles and said it was dedicated to improving its situation. Regulations in Illinois — where State Farm is headquartered — require the company to give state regulators a plan on how to restore the company's financial condition by April 15. If it does not improve, State Farm General could risk its home insurance no longer being accepted as a mortgage collateral, according to the letter.

If the state's largest insurer becomes longer accepted as mortgage collateral this would be extremely disruptive to the housing market in CA.

We've never had a mortgage that required outside insurance, so I'm only vaguely familiar with this.  What happens is someone has a mortgage that requires insurance, and the can't find anyone to cover them?  Or is there always someone offering coverage, but the rates my be obscene? 

[NorCal]

Continued insurance troubles: California’s largest home insurer won’t renew 72,000 policies

Yet they really buried the lede on this one. The real story isn't continued non-renewal of some policies, but rather this from the *very* bottom of the article:

In its letter to the commissioner, State Farm General Insurance — State Farm's branch covering home insurance in California — acknowledged its financial troubles and said it was dedicated to improving its situation. Regulations in Illinois — where State Farm is headquartered — require the company to give state regulators a plan on how to restore the company's financial condition by April 15. If it does not improve, State Farm General could risk its home insurance no longer being accepted as a mortgage collateral, according to the letter.

If the state's largest insurer becomes longer accepted as mortgage collateral this would be extremely disruptive to the housing market in CA.

We've never had a mortgage that required outside insurance, so I'm only vaguely familiar with this.  What happens is someone has a mortgage that requires insurance, and the can't find anyone to cover them?  Or is there always someone offering coverage, but the rates my be obscene?

I haven't run into this personally, but seen some online posts from Florida residents that were dropped from coverage.

Apparently, if your insurance coverage is dropped, your bank will purchase insurance for you that gets added into your monthly payments.  The banks will make sure your house is covered, and they have a reputation of buying the most expensive insurance possible. 

[FINate]

Continued insurance troubles: California’s largest home insurer won’t renew 72,000 policies

Yet they really buried the lede on this one. The real story isn't continued non-renewal of some policies, but rather this from the *very* bottom of the article:

In its letter to the commissioner, State Farm General Insurance — State Farm's branch covering home insurance in California — acknowledged its financial troubles and said it was dedicated to improving its situation. Regulations in Illinois — where State Farm is headquartered — require the company to give state regulators a plan on how to restore the company's financial condition by April 15. If it does not improve, State Farm General could risk its home insurance no longer being accepted as a mortgage collateral, according to the letter.

If the state's largest insurer becomes longer accepted as mortgage collateral this would be extremely disruptive to the housing market in CA.

We've never had a mortgage that required outside insurance, so I'm only vaguely familiar with this.  What happens is someone has a mortgage that requires insurance, and the can't find anyone to cover them?  Or is there always someone offering coverage, but the rates my be obscene?

I haven't run into this personally, but seen some online posts from Florida residents that were dropped from coverage.

Apparently, if your insurance coverage is dropped, your bank will purchase insurance for you that gets added into your monthly payments.  The banks will make sure your house is covered, and they have a reputation of buying the most expensive insurance possible.

Correct.

I've never heard of a mortgage that *didn't* require insurance. The loan is secured by the property, so the bank needs to know they will be made whole if it's destroyed/damaged.

If State Farm fails to meet the mortgage insurance standard, I expect this will result in banks first sending notification to affected homeowners saying they are required to obtain sufficient coverage within a certain time frame.

The issue is that it's already difficult to find insurance in the state, so losing the largest insurer *and* dumping tens (hundreds?) of thousands of people into the market at the same time would be pure chaos.

My guess is that even the banks would have a difficult time finding insurance at any price. Many homeowners would struggle to make the new monthly payment.

Failing to carry sufficient insurance is a violation of the contract and is grounds for foreclosure.

[Villanelle]

Continued insurance troubles: California’s largest home insurer won’t renew 72,000 policies

Yet they really buried the lede on this one. The real story isn't continued non-renewal of some policies, but rather this from the *very* bottom of the article:

In its letter to the commissioner, State Farm General Insurance — State Farm's branch covering home insurance in California — acknowledged its financial troubles and said it was dedicated to improving its situation. Regulations in Illinois — where State Farm is headquartered — require the company to give state regulators a plan on how to restore the company's financial condition by April 15. If it does not improve, State Farm General could risk its home insurance no longer being accepted as a mortgage collateral, according to the letter.

If the state's largest insurer becomes longer accepted as mortgage collateral this would be extremely disruptive to the housing market in CA.

We've never had a mortgage that required outside insurance, so I'm only vaguely familiar with this.  What happens is someone has a mortgage that requires insurance, and the can't find anyone to cover them?  Or is there always someone offering coverage, but the rates my be obscene?

I haven't run into this personally, but seen some online posts from Florida residents that were dropped from coverage.

Apparently, if your insurance coverage is dropped, your bank will purchase insurance for you that gets added into your monthly payments.  The banks will make sure your house is covered, and they have a reputation of buying the most expensive insurance possible.

Correct.

I've never heard of a mortgage that *didn't* require insurance. The loan is secured by the property, so the bank needs to know they will be made whole if it's destroyed/damaged.

If State Farm fails to meet the mortgage insurance standard, I expect this will result in banks first sending notification to affected homeowners saying they are required to obtain sufficient coverage within a certain time frame.

The issue is that it's already difficult to find insurance in the state, so losing the largest insurer *and* dumping tens (hundreds?) of thousands of people into the market at the same time would be pure chaos.

My guess is that even the banks would have a difficult time finding insurance at any price. Many homeowners would struggle to make the new monthly payment.

Failing to carry sufficient insurance is a violation of the contract and is grounds for foreclosure.

This is what I wondered about.  Especially if there are legal limits to what insurers can charge.

It sound like the banks could theoretically foreclose.  I question whether they'd do that, as it would almost certainly lead to a massive implosion in the CA real estate market, leading to even more foreclosures from people who do still have insurance.  It seems like that could potentially make '08 look like a tiny blip, though just limited to CA (and other states facing similar insurance reckonings, like FL). So I question whether they'd foreclose, but I don't know what other option they'd have.  Maybe offering new loans with higher interest rates to offset some of the risk, plus recast with all the current equity on their side?

[FINate]

Continued insurance troubles: California’s largest home insurer won’t renew 72,000 policies

Yet they really buried the lede on this one. The real story isn't continued non-renewal of some policies, but rather this from the *very* bottom of the article:

In its letter to the commissioner, State Farm General Insurance — State Farm's branch covering home insurance in California — acknowledged its financial troubles and said it was dedicated to improving its situation. Regulations in Illinois — where State Farm is headquartered — require the company to give state regulators a plan on how to restore the company's financial condition by April 15. If it does not improve, State Farm General could risk its home insurance no longer being accepted as a mortgage collateral, according to the letter.

If the state's largest insurer becomes longer accepted as mortgage collateral this would be extremely disruptive to the housing market in CA.

We've never had a mortgage that required outside insurance, so I'm only vaguely familiar with this.  What happens is someone has a mortgage that requires insurance, and the can't find anyone to cover them?  Or is there always someone offering coverage, but the rates my be obscene?

I haven't run into this personally, but seen some online posts from Florida residents that were dropped from coverage.

Apparently, if your insurance coverage is dropped, your bank will purchase insurance for you that gets added into your monthly payments.  The banks will make sure your house is covered, and they have a reputation of buying the most expensive insurance possible.

Correct.

I've never heard of a mortgage that *didn't* require insurance. The loan is secured by the property, so the bank needs to know they will be made whole if it's destroyed/damaged.

If State Farm fails to meet the mortgage insurance standard, I expect this will result in banks first sending notification to affected homeowners saying they are required to obtain sufficient coverage within a certain time frame.

The issue is that it's already difficult to find insurance in the state, so losing the largest insurer *and* dumping tens (hundreds?) of thousands of people into the market at the same time would be pure chaos.

My guess is that even the banks would have a difficult time finding insurance at any price. Many homeowners would struggle to make the new monthly payment.

Failing to carry sufficient insurance is a violation of the contract and is grounds for foreclosure.

This is what I wondered about.  Especially if there are legal limits to what insurers can charge.

It sound like the banks could theoretically foreclose.  I question whether they'd do that, as it would almost certainly lead to a massive implosion in the CA real estate market, leading to even more foreclosures from people who do still have insurance.  It seems like that could potentially make '08 look like a tiny blip, though just limited to CA (and other states facing similar insurance reckonings, like FL). So I question whether they'd foreclose, but I don't know what other option they'd have.  Maybe offering new loans with higher interest rates to offset some of the risk, plus recast with all the current equity on their side?

I'm not sure what leeway the "bank" has on whether or not to initiate foreclosure proceedings in cases of non-insurance. These things are sliced up and sold off to various financial entities with the expectation that the contracts are enforced.

It seems to me that this has the potential to be a black swan event. It's in California's best interest to make sure State Farm doesn't fail, though not sure what the state can do about it. If nothing else, they should prepare to backstop a ton of homeowners, perhaps by propping up the FAIR plan. Though depending on who you trust, the state is running a $35B - $78B deficit (I tend to believe the higher number, and think it's likely even higher), so unclear where the money comes from.

While the epicenter would be in CA, I don't think the effects would be contained within the state's boarders. Other states with similar issues, such as Florida, would suddenly look very risky. In other words, there's a contagion risk. And the pipeline of Californian's selling their expective homes and moving to other states could be disrupted... I expect this could put downward pressure in places like Boise where I live.

[NorCal]

Continued insurance troubles: California’s largest home insurer won’t renew 72,000 policies

Yet they really buried the lede on this one. The real story isn't continued non-renewal of some policies, but rather this from the *very* bottom of the article:

In its letter to the commissioner, State Farm General Insurance — State Farm's branch covering home insurance in California — acknowledged its financial troubles and said it was dedicated to improving its situation. Regulations in Illinois — where State Farm is headquartered — require the company to give state regulators a plan on how to restore the company's financial condition by April 15. If it does not improve, State Farm General could risk its home insurance no longer being accepted as a mortgage collateral, according to the letter.

If the state's largest insurer becomes longer accepted as mortgage collateral this would be extremely disruptive to the housing market in CA.

We've never had a mortgage that required outside insurance, so I'm only vaguely familiar with this.  What happens is someone has a mortgage that requires insurance, and the can't find anyone to cover them?  Or is there always someone offering coverage, but the rates my be obscene?

I haven't run into this personally, but seen some online posts from Florida residents that were dropped from coverage.

Apparently, if your insurance coverage is dropped, your bank will purchase insurance for you that gets added into your monthly payments.  The banks will make sure your house is covered, and they have a reputation of buying the most expensive insurance possible.

Correct.

I've never heard of a mortgage that *didn't* require insurance. The loan is secured by the property, so the bank needs to know they will be made whole if it's destroyed/damaged.

If State Farm fails to meet the mortgage insurance standard, I expect this will result in banks first sending notification to affected homeowners saying they are required to obtain sufficient coverage within a certain time frame.

The issue is that it's already difficult to find insurance in the state, so losing the largest insurer *and* dumping tens (hundreds?) of thousands of people into the market at the same time would be pure chaos.

My guess is that even the banks would have a difficult time finding insurance at any price. Many homeowners would struggle to make the new monthly payment.

Failing to carry sufficient insurance is a violation of the contract and is grounds for foreclosure.

This is what I wondered about.  Especially if there are legal limits to what insurers can charge.

It sound like the banks could theoretically foreclose.  I question whether they'd do that, as it would almost certainly lead to a massive implosion in the CA real estate market, leading to even more foreclosures from people who do still have insurance.  It seems like that could potentially make '08 look like a tiny blip, though just limited to CA (and other states facing similar insurance reckonings, like FL). So I question whether they'd foreclose, but I don't know what other option they'd have.  Maybe offering new loans with higher interest rates to offset some of the risk, plus recast with all the current equity on their side?

I'm not sure what leeway the "bank" has on whether or not to initiate foreclosure proceedings in cases of non-insurance. These things are sliced up and sold off to various financial entities with the expectation that the contracts are enforced.

It seems to me that this has the potential to be a black swan event. It's in California's best interest to make sure State Farm doesn't fail, though not sure what the state can do about it. If nothing else, they should prepare to backstop a ton of homeowners, perhaps by propping up the FAIR plan. Though depending on who you trust, the state is running a $35B - $78B deficit (I tend to believe the higher number, and think it's likely even higher), so unclear where the money comes from.

While the epicenter would be in CA, I don't think the effects would be contained within the state's boarders. Other states with similar issues, such as Florida, would suddenly look very risky. In other words, there's a contagion risk. And the pipeline of Californian's selling their expective homes and moving to other states could be disrupted... I expect this could put downward pressure in places like Boise where I live.

I'm in Denver.  I suspect the insurance crisis is roughly 5-10 years behind California throughout the West.

I've heard the insurance industry cite two main factors when discussing California and Florida.  The first is the greater disaster risk we're all seeing and discussing.  The second is the less discussed high cost of construction in California and Florida. 

While the rest of the country isn't at California construction prices yet, we're not that far behind.

We do seem to be on-trend for two decent precipitation years in a row, so hopefully we're getting at least a brief reprieve from the fire seasons and drought.   

[2sk22]

There was a good episode on the Odd Lots Podcast about the insurance crisis:

https://www.bloomberg.com/news/articles/2024-03-21/why-insurance-rates-have-been-surging-in-california-and-florida?srnd=oddlots&sref=HdNFLlbP

It was interesting to hear about Prop 103 in California (passed in 1988) which seems to be the cause of much of the problems there.

[2sk22]

A short but interesting article by SwissRe (a big reinsurer) about the drivers of increase in property losses

https://www.swissre.com/institute/research/sigma-research/sigma-2024-01.html