- Floridians don’t pay enough for flood insurance, according to DeltaTerra Capital analysis.
- Some home prices could drop by 50% if buyers realize the true cost of flood protection.
- Hurricane Ian could be a turning point as insurers repricing and other markets take notice.
Hurricane Ian left a trail of destruction across Florida, but the state’s housing market has yet to bear the brunt of its impact.
An analysis by investment research and consulting firm DeltaTerra Capital found that property prices could not explain rising homeownership costs, including the inevitable rise in insurance premiums to cover flood risk from disasters like Ian’s.wall street analyst predicted The 2008 housing crash.
DeltaTerra said there would be a sticker shock as insurers raise flood insurance premiums to more accurately cover expected costs. Foremost, home prices in some of the state’s most risky areas could fall as much as 50%.
DeltaTerra founder and CEO David Burt was a consultant to Cornwall Capital, a firm famous for shorting the subprime mortgage market in a feat described in Michael Lewis’s book The Big Short.In recent years he sound the alarm On the widespread threat floods pose to the US housing market.now Hurricane Iantore At least 21 people died in Florida this week leaving tens of billions of dollars Estimated damage amount The result could be a turning point for both insurers and homeowners, Bart said in an Insider interview this week.
This is because flood insurance can be much more expensive in high-risk areas. Risk Assessment 2.0, Federal Emergency Management Agency’s updated method of pricing flood risk for policies held through the National Flood Insurance Program. Flood insurance policies that today cost $300 or $400 a year could jump to $10,000, he said, as a result of Risk Rating 2.0, which took effect last October.
Such an increase, combined with higher home insurance premiums that Florida homeowners are already paying, could make them build homes there. much less attractive Burt said to the buyer.
According to FEMA, prices for most of the NFIP policies nationwide are not expected to be very large. Many policies actually cost less. But Florida is a state where home insurance companies exist. already strugglingBurt said, leaving a huge gap between what homeowners are paying and what a disaster could hurt insurance companies.
It’s not just about how hurricane damage affects local markets, Bert said. Instead, the question is how buyers will react when things are rebuilt. Burt said prospective buyers may be “significantly less willing to buy the home” when they face higher insurance premiums and the possibility of similar disasters occurring again.
“There will be far fewer buyers,” Burt said. “Anyone who owns a home now could be drowning in a mortgage.”
Lee County, which includes Fort Myers in southwestern Florida and its suburb of Cape Coral, has the largest gap between what homeowners used to pay for flood insurance and what insurance companies should have charged to cover the risk. DeltaTerra has discovered that this is one of the places where there is a discontinuity in In an analysis the company shared with investors in May 2021, DeltaTerra estimated that single-family home values in metropolitan areas could fall 32.3-52.8% if the market correctly estimates flood protection costs. Did.
Fort Myers was right in the middle when Hurricane Ian made landfall. Given the true cost of flood protection, the recovery in the housing market could become even more difficult at a time when rising interest rates have dampened buyer demand. Bart said it would send a warning to other subways.
“People are actually being exposed to events that are not bailed out by rising house prices, and we can see these problems persisting a year and a half later, unlike what happened in previous disaster events. is a strong signal for other markets,” Bart said.
“Once people actually observe some financial damage, that’s when they start reacting to it,” he added.