In recent times, insurance costs have been skyrocketing, leading to significant concerns within the real estate market. While some attribute this surge to “greedy insurance companies,” there are various factors at play, including wildfires, floods, inflation, and delays from regulatory bodies like the California Department of Insurance. More on the California Insurance Mess. The impact of these rising costs is far-reaching, affecting existing homeowners, potential buyers, Homeowner Associations, and rental property suppliers alike. This blog delves into the implications of surging insurance costs on the housing market and explores how it may disrupt various aspects of the industry.
- The Far-Reaching Effects: The unprecedented increase in insurance costs is causing financial strains on homeowners, buyers, Homeowner Associations, and rental property suppliers. Even individuals with long-term fixed-rate mortgages and Prop 13 benefits, which limit property tax increases, find themselves burdened by insurance premiums that behave like uncontrolled Adjustable Rate Mortgages.
- The Predicament of Condo Homeowner Associations: One glaring example from Santa Clarita illustrates the gravity of the issue. The Master Insurance Policy saw a staggering increase from $128,000 in 2021 to $1.2 million in 2023. These escalated costs must inevitably be passed on to owners through higher monthly dues or special assessments, leading to financial stress for condo owners.
- Troubling Trends for Rental Property Suppliers: Rental property suppliers, particularly in the Los Angeles region, face unique challenges. With rent controls in place, they are unable to transfer the burden of additional insurance and maintenance costs to tenants, which adversely affects their return on investment and makes rental properties economically unviable. This further exacerbates the ongoing housing supply issues.
- Insurance Company Actions: In response to the changing landscape, insurance companies have taken various measures, including dropping coverage for existing insured properties or imposing substantial premium increases alongside higher deductibles and reduced coverage. Such actions add to the financial burden of property owners and exacerbate the housing market’s complexities.
- Implications for Real Estate Transactions: For potential buyers, insurance costs have become a crucial factor to consider during the property purchase process. Early evaluation of insurance premiums and their viability to insure is essential, and must be completed during the investigation contingency period. Additionally, the cost of insurance can impact a buyer’s Debt-To-Income ratio if they are obtaining a mortgage. Failure to secure viable insurance during the escrow process may lead to the loss of the deposit if the transaction cannot be completed.
While the current real estate market is robust, the mounting insurance costs present a significant threat to its stability. As insurance expenses continue to surge, the housing industry must grapple with the challenges posed by these rising costs. Homeowners, buyers, Homeowner Associations, and rental property suppliers are all impacted, and creative solutions will be required to maintain a sustainable housing market in the face of this insurance crisis. Vigilance in evaluating insurance options during real estate transactions is crucial to safeguard against potential financial risks in the future. BTW The insurance scenario is even worse in Florida, if you’re thinking moving there is a viable option.
If you are in the Los Angeles area, and have any questions or real estate sales or financing needs, feel free in contacting me
Ron Henderson GRI, SRES, SFR, RECS, CIAS
President/Broker
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals (2017-2018)
Chairman – OutWest Marketing Meeting (Real Estate Education)
BRE #00905793 NMLS #310358
www.mres.com
ronh@mres.com
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth
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