In the wake of Hurricane Ian’s devastation, the real-estate market in Cape Coral, Florida, is experiencing a significant shift. Despite the allure of waterfront homes, soaring home-insurance premiums and escalating flood insurance costs are raising alarm bells for potential buyers. Agents have started to feel the pinch with slower sales and even canceled deals, particularly in areas at high risk of floods or wildfires. As insurers scramble to recover from underwriting losses, they have resorted to hiking rates or pulling back from disaster-prone areas, causing the average annual home-insurance premium in Florida to triple in just five years.

The federal National Flood Insurance Program has also undergone changes, linking premiums more closely to risk. This shift has led to a rapid increase in the cost of flood insurance in vulnerable areas like Cape Coral. Notably, the average annual flood-insurance premium for a waterfront zip code in the city has soared from $1,791 to $4,728. While the local property market remains robust for now, experts warn that the rising costs to own properties in these areas could eventually dampen their resale value.

Southwest Florida Real Estate Feels the Pinch of Rising Insurance Premiums

Despite the devastation wrought by Hurricane Ian last year, real estate agents in Cape Coral, Florida, are still promoting waterfront homes as an ideal investment. However, soaring home-insurance premiums and increasing concerns about disaster risks are starting to impact the local real estate market.

Escalating Insurance Costs

Insurance companies, attempting to recover from significant underwriting losses, have either increased rates or retreated from disaster-prone areas like Cape Coral. The Insurance Information Institute reveals that the average annual home-insurance premium for Floridians has tripled over the past five years, escalating from $1,988 in 2019 to a whopping $6,000.

Adding to this financial burden, the cost of flood insurance, mandatory for some Florida residents, is rising even faster in high-risk areas. The federal National Flood Insurance Program recently adjusted its pricing to reflect risk levels more accurately. Consequently, in Cape Coral, the average annual flood-insurance premium for a waterfront zip code has surged from $1,791 to $4,728.

The Impact on Real Estate Market

Despite these rising costs, many Americans continue to gravitate towards disaster-prone areas, attracted by lower taxes, affordable housing, and appealing climates. However, escalating insurance costs are starting to affect the market, slowing sales and leading to some canceled deals in high-risk areas.

According to a study by Redfin, in the past two years, a net 60,000 people moved to Lee County, which includes Cape Coral. Yet, a recent survey reveals that almost a third of Florida house builders reported a slowdown in sales due to concerns about insurance. Alexandra Glickman, Global Head of Real Estate and Hospitality at insurance broker Arthur J. Gallagher, warns, "Insurance is absolutely having an impact on house purchases—and that’s going to continue to happen.”

The Future of Disaster-Prone Areas

The rising cost of insurance may cause buyers to reassess the appeal of disaster-prone locations. Moreover, researchers argue that the risks of disasters have not been fully priced into property markets. If flood risks were accounted for, U.S. residential properties would be worth at least $121 billion less, according to a study by the First Street Foundation and the Federal Reserve.

However, despite these warning signs, Susan Asmus, Head of Regulatory Affairs for the National Association of Home Builders, believes that the small number of homeowners currently holding flood insurance means the pricing change is “not likely enough to tip the scale” against the continued construction of new homes in flood plains.

Takeaways

These rising insurance costs underline a broader national challenge: how to manage the interplay between climatic risks, insurance costs, and real estate markets. As the impact of climate change intensifies, it’s clear that both homebuyers and insurance companies will need to reassess their strategies and expectations. For homebuyers, a low initial purchase price may no longer outweigh the potential costs of insuring a property against natural disasters. For insurers, accurately pricing risk will be crucial to maintaining their financial stability.