Good afternoon —
On Friday, a change to federal flood insurance pricing will go into effect. And it could have far-reaching implications for homeowners, real estate markets and the housing finance industry.
The federal government's new approach effectively means an end to subsidies that kept flood insurance premiums relatively low for homeowners living near the ocean, Flavia Furlan Nunes reports. Federal officials say the change is about fairness and pushing homeowners to realize the extent of the risk they actually face.
A little background: The National Flood Insurance Program, created in 1968, is the primary provider of flood coverage nationwide. Its administrator, FEMA, has historically priced insurance based on whether the home is in the 100-year flood plain. The average annual premium is $739. Because FEMA's current model doesn't account for risks like flash floods or the proximity to water, millions of homeowners pay rates that understate the actual risk. The agency says that homeowners on the coasts – who are often wealthier – are subsidized by homeowners inland, who are more likely to be minorities and low-income homeowners.
In some parts of Florida, the cost of flood insurance will eventually increase tenfold, according to an analysis by the New York Times.
According to data released by FEMA, 2.4 million homeowners in the U.S. will see rates go up by no more than $120 in the first year. About 600,000 homeowners will see costs fall. But roughly 331,000 single family homes will see a significant rise in premiums: about 230,000 homeowners will see costs rise up to $240 in year one; 74,000 will see an increase by as much as $360; and 25,000 single-family homeowners will see costs rise up to $1,200 more in the first year.
Though environmentalists, climate experts and the insurance industry are in favor of the new model – called Risk Rating 2.0 – politicians from both parties are concerned and are trying to stop the changes from going into effect.
It's important to note that FEMA hasn't yet released information about rate increases over time. If they are as high as expected, it could fundamentally change where people live, how mortgages are underwritten and what homes sell for. And that's the point, right? This is the reality of the world we now live in.
"You can pay down your house," Marti Beller Lazear, who is buying a house on Treasure Island near St. Petersburg, Florida and will watch flood insurance rates climb from $3,903 a year to $10,655, told the Times. "You can't pay away the flood insurance."
James Kleimann
Managing Editor, HousingWire
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