In his 13 years as a real-estate agent, Scott Goshorn has never seen a home-insurance market this difficult.
When he was helping sell an $8 million house in the Westlake section of Los Angeles, Goshorn got quotes from insurance companies so he could give prospective buyers an idea of their potential insurance costs.
Most Read from MarketWatch
He was told that wildfire coverage on the property would cost $140,000 a year. A few years earlier, the cost probably would have been $20,000 or less, he said.
“Selling a home in a fire zone is very difficult,” Goshorn told MarketWatch. “The crazy insurance is now a deal killer.”
The home’s eventual buyer ended up getting a policy that cost a relatively reasonable $60,000 a year by working with an insurance provider that had insured other homes he had owned.
Others haven’t been so lucky.
Across the U.S., skyrocketing insurance costs are weighing on the housing market. Buyers and homeowners can’t find sufficient insurance coverage.
Insurance challenges are having such a profound effect on the housing market that real-estate companies that pioneered the industry’s shift to the digital arena are making changes to how they do business.
Companies like Zillow Z — known for its online listings and its proprietary home-valuation algorithm, dubbed the Zestimate — and real-estate brokerage Redfin RDFN have rolled out new tools to outline the risks of buying properties in disaster-prone areas.
These companies have started telling buyers up front how much risk a home faces from things such as flooding, wildfires and poor air quality. The data is collected by First Street, a company that analyzes climate change and financial risk.
Buying a house is getting harder
The spotlight on climate risks comes at a time when U.S. home buyers are already weary of a market that’s expensive and crowded, with little inventory.
Home insurance — both the cost and the availability — has begun tripping up some home buyers. Buyers are finding it so hard to get insurance that in some cases it jeopardizes their entire home purchase. In most cases, buyers are required to have insurance coverage if they’re taking out a mortgage to finance the purchase.
Deals have fallen apart often enough due to a lack of insurance coverage that the California Association of Realtors has started allowing buyers to pull out of a contract on a home if they are unable to secure insurance coverage. That allows the buyer to retrieve money placed in escrow.
Nationally, home sales have yet to be adversely impacted by home-insurance costs or lack of coverage, the National Association of Realtors told MarketWatch.
Nonetheless, there is concern because “naturally, a home buyer will be very hesitant about buying a property that cannot be insured,” NAR’s chief economist, Lawrence Yun, said.
Homeowners are dealing with soaring insurance premiums
While getting into the housing market is becoming more expensive and challenging, staying in it is also getting harder.
Homeowners are already struggling with the ongoing costs of owning: About 45% of homeowners said they lived paycheck to paycheck because of homeownership costs, a recent survey by Santander found.
That’s in part due to high insurance costs. In just two years, the average annual premium rose nearly 20%, from $1,984 to $2,377 a year, according to Cambridge, Mass.-based startup Insurify.
Premiums alone make up one-tenth of monthly housing costs, according to data from Intercontinental Exchange Inc. ICE — and that figure is as high as 25% in higher-risk areas.
Some people are opting to skip insurance entirely. Twelve percent of homeowners surveyed in the third quarter of 2023 said they had not purchased homeowners’ insurance, according to a report by the Insurance Information Institute.
Insurance costs make homeownership a less stable financial proposition. Unlike a monthly mortgage payment, which is mostly fixed for 30 or 15 years, insurance costs have been rising every year.
For some homeowners, such as those in coastal areas, the increase in premiums may be exorbitant. That can pose a big challenge when people have already put down roots in a community and enrolled kids in school, Benjamin Collier, an associate professor at Temple University, told MarketWatch. Collier’s research examines how households manage climate risks.
As Hurricane Milton approaches Florida, hard on the heels of Hurricane Helene, there could be an effect on home-insurance premiums, as claims and payouts impact insurers, he said.
Increasing frequency of natural disasters could push annual premiums up by as much as $700 by 2053 for climate-exposed households, one working paper suggested.
Why real-estate companies want you to know climate risk
Real-estate companies want buyers to know the risk that they’re taking on before buying a house.
For example, about 56% of all the new listings of existing homes nationwide in August were in areas with a major risk of extreme heat, which can affect livability, according to analysis by Zillow.
In some markets, climate risks were elevated: In August, more than 70% of new listings in the Riverside, Calif., metropolitan area were at risk of major wildfires.
About 77% of new listings in New Orleans faced the risk of flooding.
Zillow’s goal in providing the risk information on new listings “is to deliver climate-risk data that is not only accurate, but actionable,” Susan Daimler, president of Zillow, told MarketWatch.
Based on data provided by First Street, Zillow now recommends whether a property could use an extra insurance policy, but the company does not list a quote or recommend a provider.
“Zillow is the only platform to offer tailored insurance recommendations alongside detailed historical insights,” she said, “allowing buyers to see if a property has faced past climate events, such as flooding or wildfires.”
And as natural disasters increase in frequency, tools to assess risk have become imperative for buyers making the biggest purchase of their lives, Daimler said.
Consumers want to know about the risks involved when buying a property, Collier said, and that demand is pushing companies to provide that information.
That demand also aligns with some of these companies’ business models as marketplaces.
Companies like Redfin and Zillow have historically collected their users’ contact information, evaluated their interests and provided them with relevant home listings. Zillow sells these leads to real-estate agents; Redfin directs the leads to its own agents, who don’t pay for them, according to the company.
For now, Realtor.com, Redfin and Zillow told MarketWatch that they are not selling such leads to insurance companies or advertising possible providers.
The federal government maintains a national database where homeowners can look up their flood risk, but companies like these provide information that may be more up to date, on platforms consumers are familiar with.
Consider the fact that nearly eight in 10 properties that flooded due to Hurricane Debby, which moved across the Southeastern U.S. in August, were outside of flood zones designated by the Federal Emergency Management Agency, according to First Street. That means that they were located in areas where mortgage providers do not mandate that buyers have flood insurance.
See also: Think flood insurance is pricey now? Premium hikes were coming long before Hurricane Helene.
FEMA maps are updated every five years. The maps also include input from the community, which can sometimes hold up the process. Communities may be opposed to changes in flood maps that could translate into higher insurance premiums.
That process, which experts say can be influenced by political pressures, can hold up critical updates to flood-insurance changes, Collier said. In cases where the proposed updates have been “unattractive to the community, they can get held up for much longer,” he added. That can “create delays … that you don’t see from these other providers that don’t have to engage in the same political process.”
Consumers are more sensitive to climate risk
The federal government and its agencies, including the U.S. Department of Housing and Urban Development and government-sponsored enterprise Fannie Mae FNMA, have told MarketWatch that they are closely watching how homeowners deal with adverse weather conditions.
Consumers are also becoming more sensitive to home-insurance costs and climate risk.
Roughly a third of U.S. residents between the ages of 18 and 34 said that hearing about the damage caused by Helene has led them to reconsider where they want to move in the future, according to a survey by Redfin in early October.
The damage caused in places that were thought to be less prone to flooding, such as Asheville, N.C., has compelled people to think that “nowhere is truly immune to the impacts of climate change,” Daryl Fairweather, chief economist at Redfin, said in a statement.
“And we’re starting to see that impact where people want to live — even people who haven’t experienced a catastrophic weather event firsthand,” she added.
But others may be slow to change their home-buying choices in response to climate risks.
Waterfront homes, while vulnerable to flooding and rising sea levels, will always be in demand, one Tampa-based real-estate agent told MarketWatch in the wake of Hurricane Helene. “A few years go by, everybody forgets, or buyers forget about it. And it goes back to the norm,” he said.
Yet even well-heeled buyers who can afford rising premiums could soon be out of luck: Back in Los Angeles, Goshorn said that insurance companies only offer a few policies in wildfire-prone areas, and those policies are difficult to get.
Several insurers have left the state altogether, leaving homeowners with dwindling options. As a result, homes are selling less frequently in those areas as transactions hit roadblocks.
How to check if your house is at risk for flooding
There are several ways homeowners can check to see if their property is in a flood zone.
Government flood maps. Homeowners can look up the likelihood of their property flooding on the FEMA Flood Map.
Online listings. Homeowners can look up their address on Realtor.com or Redfin, for instance, and view the environmental risk facing the property. (Realtor.com is operated by News Corp subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, also a subsidiary of News Corp NWSA.)
First Street’s map. Homeowners can look up their address on First Street’s website and discover what sort of climate risks their property faces and what type of insurance might be best.
See also: Hurricane Milton victims could get more generous tax breaks. Senators just need to vote for them.
What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can fill out or write to us at . A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.
