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Flood Insurance Jumping Sevenfold Depresses U.S. Home Values
http://www.nationalmortgagenews.com/dailybriefing/Flood-Insu...

Rangel Dockery and her husband bought a waterfront house in Florida four months ago, assuming their $2,000-a-year flood-insurance premium would remain about the same. After reading recently about a change in the federal flood program, they checked on next year’s rates and were stunned: Their bill will grow to $14,000 annually.

Now the elementary school teacher and her husband, Clint, an information technology specialist, are considering selling their two-bedroom St. Pete Beach home, probably at a loss, because she said they can’t afford the bill, and their mortgage requires flood coverage.

“It was very frustrating to finally have what we’ve worked hard for all of our life,” Rangel Dockery says. “I feel like the rules were changed in the middle of the game. And unfortunately, we can’t play by the new rules.”

Monthly premiums for more than 1 million homeowners are set to increase due to a rewrite by the U.S. Congress last year of the federal flood insurance program. As a result, home prices in flood zones around the country are declining as potential buyers balk at the premiums, said Moe Veissi, a Miami real estate agent who led the Chicago-based National Association of Realtors last year.
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CC, I am curious about your thoughts on this. You seem to be a big proponent of getting government out of our lives. But here you seem to be against asking homeowners to pay the true cost of their flood insurance, and want to go back to taxpayer support. As the linked article says, the law was "designed to reduce the National Flood Insurance Program’s growing debt" and is supported by conservative groups such as Heritage Action for America.
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Rangel Dockery and her husband bought a waterfront house in Florida four months ago, assuming their $2,000-a-year flood-insurance premium would remain about the same. After reading recently about a change in the federal flood program, they checked on next year’s rates and were stunned: Their bill will grow to $14,000 annually.

I feel for these people, truly. However, even a smidge of research on their part would have raised a huge number of red flags about this. It's been all over the internet for a whole lot more than 4 months. Buyer beware.

IP
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But here you seem to be against asking homeowners to pay the true cost of their flood insurance,...

Would be nice if that were actually true. However, being someone who actively is in the market for waterfront properties, I can tell you that my personal experience has been that flood insurance costs are all over the map. Properties that survived 500 year floods without impact costing more in flood insurance than a property downstream that had flood waters up to the ceilings.

And the verbiage on the FEMA websites make it sound as though a rate will be grandfathered once it is put in place, that a new buyer will inherit the previous owner's rate. This was at least the case when I tried to buy a place a few years ago, where the flood insurance rate would have increased from $300 to $6,500/year with our purchase. When I pointed the grandfather clause in the FEMA website to FEMA, I was basically told not to expect logic from the gov't. Fema was going to do what it wanted to do.

IP
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I have no thoughts about this. This post is information only.
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I wonder how long it will be before all mortgages will come with required basic flood insurance. It's been a wild year for flooding in places no one expected it.

IP
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It is an issues that buyers and sellers need to be aware of.

Its great to live some place with a nice beach or coastal views, but if a 500 yr storm destroys that home, who should pay? Not government. So either home owner takes the loss or homeowner pays the cost of insurance for that risk. And without insurance can you get a mortgage? So only the wealthy can afford to live such places.

No one wants to pay the bills. But why should taxpayers pay them?

But then should this kind of thinking extend to earthquakes, tornadoes, brush and forest fires, tsunamis, global warming, etc, etc.?

Choose your risk. Most of us have one or more of them.

Private insurance companies will cover the risk, but they need premiums to cover their losses. That means owners pay a share of the cost of these risks. But if they become unaffordable, does that mean large regions of the US are abandoned? Converted to parks or wildlife refuges? Or assigned low investment uses like tree farms or pasture lands?

Yes, changes in risk perceptions and resulting changes in insurance costs can reduce the resale value of a property. Some may become unsaleable. But that is part of real estate. Caveat emptor!!

It's an issue that should be discussed.
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But if they become unaffordable, does that mean large regions of the US are abandoned?

Rolling Stone had an interesting article on the impact on Miami of increased flooding due to climate change.

http://www.rollingstone.com/politics/news/why-the-city-of-mi...

"The financial catastrophe could play out like this: As insurance rates climb, fewer are able to afford homes. Housing prices fall, which slows development, which decreases the tax base, which makes cities and towns even less able to afford the infrastructure upgrades necessary to adapt to rising seas. The spiral continues downward. Beaches deteriorate, hotels sit empty, restaurants close. Because Miami's largest economies are development and tourism, it's a deadly tailspin. The threat of sea-level rise bankrupts the state even before it is wiped out by a killer storm."
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Subject: Re: What a kick in the face

I have no thoughts about this. This post is information only.


Odd choice of a subject line for something that you have "no thoughts" about.
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Whatever.
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My thoughts on this entire subject? I feel that if we decide to purchase a home in an area prone to flooding, we should be willing to pay the piper. I grew up at Virginia Beach, and I am certain the home now has a tremendous flood insurance premium. Then, my parents moved to Florida in a house not near a flood zone. However, the house was only 25 miles from the Gulf and was subject to hurricanes anytime one hit the Gulf.

Those who suffer damage in flood/wind prone areas, and who suffer severe damage but insist on rebuilding in that area should pay larger insurance premiums. Why should the taxpayers pay them? We are not in such a zone.

Donna
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I feel that if we decide to purchase a home in an area prone to flooding, we should be willing to pay the piper.

Problem is, risk of flooding changes with other development in the area paving over permeable surfaces. This is credited with being a significant contributing cause in the increased flooding in the Hershey PA area in the past several years. You can't control development on land you do not own.

It's real easy to blame those that get flooded out, to assume the homeowner knew the risks. It's not always that black and white.

IP
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Problem is, risk of flooding changes with other development in the area paving over permeable surfaces.

When you buy real estate you are making a long term investment. It behooves you to consider the risks carefully. If risks to the property change over say 40 or 100 years, the value of the property will be impacted.

Buying a high risk property means taking that risk.

Of course, most buyers close their eyes to such risk to enjoy the good days. But when disaster hits, then they complain. This is human nature, but not the way the game should be played. Govt is not responsible.
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Of course, most buyers close their eyes to such risk to enjoy the good days. But when disaster hits, then they complain. This is human nature, but not the way the game should be played.

It's still a kick in the face. ;-)
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Typical.
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If the federal flood insurance is priced way too high compared to the real risk then eventually private or state flood insurance will be created.
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Some states are reacting.

Massachusetts Attorney General Proposes Limiting Amount of Mandatory Flood Insurance for Homeowners

“These new flood insurance changes are going to devastate many families and businesses in our coastal communities,” Coakley said.

“We continue to urge the federal government to delay implementing these changes until they’ve followed all the steps required by law,” said. “In the meantime, this state legislation can help mitigate the impact of these costs on families and businesses. [...]”

DeLeo said that as Massachusetts’ Speaker of the House and a representative of a coastal community, he has become increasingly concerned about the changes being implemented by FEMA regarding flood insurance.

“My priority is protecting Massachusetts businesses and families, whom Washington’s new system puts into peril. I am pleased to work with Attorney General Coakley to do what we can to resolve this problem at a state level,” DeLeo said.

More at => http://www.insurancejournal.com/news/east/2013/10/16/308340....
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It behooves you to consider the risks carefully. If risks to the property change over say 40 or 100 years, the value of the property will be impacted.

Buying a high risk property means taking that risk.


You assume that it is possible to see or understand these risks, particularly when it is impacted by farms 20 miles away being turned into subdivisions. Or how about the recent flooding and mudslides in CO, where a major contributing cause is believed to be the deforestation from last years fires? So many of those people did not have flood insurance. It is a misconception that a property is not at risk for flood because it it not within view of a creek or other body of water.

FEMA changed our flood maps in the area about 7 years ago. Very impressive how many homes were now subject to required flood insurance, even though the requirement was not there when the place was purchased, and there was no flowing water to be seen nearby.

Why do I need flood insurance, even though my community has never been flooded?

Flooding occurs in moderate-to-low risk areas as well as in high-risk areas. Poor drainage systems, rapid accumulation of rainfall, snowmelt, and broken water mains can all result in flood. Properties on a hillside can be damaged by mudflow, a covered peril under the Standard Flood Insurance Policy.


http://www.floodsmart.gov/floodsmart/pages/faqs/why-do-i-nee...

Someone recently expressed the erroneous belief to me that they could not buy flood insurance because they were not in a flood plain. Nor was their neighbor whose basement filled with water in recent extreme flooding. I expect flood insurance to become required by all gov't insured mortgages within the next couple of decades. So many properties that get flooded are not in flood plains, with the floods taking unexpected paths into "low risk" properties.

IP
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Nor was their neighbor whose basement filled with water in recent extreme flooding.

My understanding is that flood insurance doesn't cover basements.
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My understanding is that flood insurance doesn't cover basements.

Probably depends on the level of insurance you pay for. I know this is the case for raised homes over garages, anyway. You can chose to pay for insurance on just the upstairs contents, or the contents on the lower level as well. I suspect the structure is covered either way.

It's a moot point. They were out of the flood plain and did not have insurance.

IP,
going by what she's been told, never having obtained flood insurance personally, though not for lack of trying
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What is covered in my basement?

Flood insurance covers your home's foundation elements and equipment that's necessary to support the structure (for example: furnace, water heaters, circuit breakers, etc.).

It's important to note that some items in your basement are covered under building coverage (like a furnace, hot water heater and circuit breaker) and others are covered under contents coverage that must be purchased in addition to building coverage (for example, your washer and dryer, or your freezer and the food in it).


http://www.floodsmart.gov/floodsmart/pages/faqs/what-is-cove...
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No longer being able to live on waterfront property because flood insurance has increased too vastly in rate: first.world.problems.
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No longer being able to live on waterfront property because flood insurance has increased too vastly in rate: first.world.problems.

The flood insurance problem doesn't involve only waterfront property.

A friend of mine lives 5.6 miles from the beach, yet she pays $287 per month for flood insurance. I live the exact same distance from the beach, but my house is (est.) 50 feet higher elevation, so flood insurance isn't required.
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A friend of mine lives 5.6 miles from the beach, yet she pays $287 per month for flood insurance. I live the exact same distance from the beach, but my house is (est.) 50 feet higher elevation, so flood insurance isn't required.

I'm about 197 miles from the beach. Flood insurance isn't required, but I bought a policy anyway - I pay about $250/year.

As with anything else, if one's insurance goes up you can - try and cut your budget to see if you can free up some income, attempt to make more income, or sell. That's life.
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I feel that if we decide to purchase a home in an area prone to flooding, we should be willing to pay the piper.

Freak natural occurrences affect areas regardless of whether they are "prone to flooding" or not. The house where I grew up is about a mile from the beach and survived hurricanes for decades with no flooding at all, but it got about 14 FEET of water from the Katrina tidal surge in coastal MS.

A number of people in my coastal hometown like living there because of the relatively low cost of living. But one thing they don't seem to realize is that the low cost has a reason: every few years there's a hurricane either coming through or grazing the town. So while people know this, they expect help all the time whenever a disaster occurs (regardless of how often they rile about "the gubmint").
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