There are so many factors that affect the residential property market. One of these is flood insurance, which is necessary for properties in flood-prone areas. An increase in flood insurance premiums has far-reaching effects in the industry. For example, increasing the premiums for flood insurance:
Makes Living in the Houses Difficult
One of the first effects, for those who already have houses in flood-prone areas such as waterfronts, is that it makes it difficult to continue living in the houses. For example, the National Flood Insurance Program increased the rates by as much as 25%. This is not a small amount of money if you are already paying flood insurance to the tune of thousands of dollars per year.
Although the rate increase will affect everybody, homeownership becomes even more costly for those who are still servicing their mortgages. It's not unheard of to pay more for home insurance than for the mortgage repayments.
Makes it Difficult to Sell the Affected Houses
Another consequence of the rate increases is that it's more difficult to sell the affected houses. Even in normal times, it's not always easy to sell a home in a flood-prone area due to the necessity of flood insurance. However, it's even more difficult to sell them when flood insurance premiums increase substantially. Potential buyers are scared not only with the high cost of coverage but also with the possibility that the rates may still increase in the future.
Leads to Mortgage Difficulties
Lenders also require increased coverage for the houses. Remember, mortgage companies are in business, and inadequate coverage means exposes their investments to increased risks. Increasing their insurance demands is one way in which they can deal with this heightened risk.
Leads to Declining Selling Prices
If you own property in one of these areas, and you can't afford to keep it, then one of the solutions would be to sell it. As hinted above, you may not find many offers for your property, especially if you want to make a profit in the process. You may be forced to lower your rates to the point where you may even sell it at a loss.
Therefore, if you own property in a flood-prone area or expect to own one, then you need to pay attention to the insurance industry. Potential buyers also have to scrutinize their purchase contracts, consider the impact of flood insurance (such as lender requirements) before completing the deals. For more information, contact companies like Haring Realty.