Here’s a Q+A I put together, based loosely on a recent appearance I made
on The Weather Channel, with tips for homeowners on how to insure their homes
against hurricane damage.
Agents who sell in hurricane-prone areas: what are your tips?
Q: Did Katrina
impact the real estate market in the Gulf Coast, where the storms hit?
A: It did, and it’s still impacting these
markets now.
It affected the value of homes where the storms hit and in
surrounding areas for several years.
It also had a long term impact on the ability to insure homes in those
areas, which affects market activity, because people must be able to insure
those homes to before they can buy them.
It also impacted area residents’ incomes for several years,
which obviously impacts housing market, too. People have to make money in order to be able to make their mortgage payments or buy homes.
Q: Did home values just plummet
in those areas?
A: Strangely enough, home values at the
epicenter actually rise in the wake of a hurricane.
For example, Katrina happened in August 2005, and home
values went up by 7% in the last quarter of that year and continued to go up
for several years, we’ve seen that in other hurricanes, too
Essentially, the hurricanes’ property destruction puts a
major dent in the supply of available and desirable housing, which makes the
housing that is still standing more valuable.
The catch is that in nearby towns that don’t actually
sustain any property damage, prices can go down as much as 20%, because of the
perception of hurricane danger.
Q: How do people know
if they should get hurricane insurance?
A: In most cases, insurance doesn’t actually
cover hurricanes per se. Whether
hurricane damage is covered or excluded depends on what element of the
hurricane caused the damage to the home, usually wind or rain.
For example, after Katrina many homeowners insurance claims
were rejected because the water didn’t get in through a wind-damaged area of
the home, which would have been covered, so it was considered a flood, which
was excluded from coverage
So to protect themselves, people should really consider
maintaining both their homeowner’s insurance policy and a flood insurance
policy.
Most mortgage lenders will actually require homebuyers to
obtain flood insurance if their home is located in a Special Flood Hazard Zone
on FEMA’s flood zone maps – check them out at FEMA.gov.
Those people must have flood insurance, but
many other people should, too – 25% of the flood insurance claims are paid on
homes not in a flood-prone area on the map.
(·
(Flood-prone areas, a/k/a the 100-year
floodplain, are areas with a 1% chance of having a flood in any given year.)
·
It’s much cheaper to get flood insurance if
you’re not in a high-risk area, so that should factor into homeowners’
decision-making about getting flood insurance.
Q: I understand there
is a governmental flood insurance program homeowners can actually go to to get
their insurance.
A: Here’s the
thing – private insurance companies do not offer flood insurance independently
– because the same homes tend to be flooded year after year, and those are the
only homes whose owners tend to get coverage – it’s too expensive.
So, homeowners who want or need flood insurance must buy it
through a company that participates in the National Flood Insurance Program.
Q: That Program has
had some real challenges this year, hasn’t it?
A: It really
has. The program is basically upside-down. It was really impacted after
2004-05, because they had to pay for owners to rebuild the same homes actually
multiple times.
These are what we call “repetitive loss properties.”
The program is now
$20 billion in debt, and it is operating at a deficit, so Congress is actually
having an ongoing debate about whether the taxpayers should continue to fund
the program.
Twice this year, the program actually lapsed, meaning
Congress let the program totally run out of funding, which causes real estate
market to grind to a halt because mortgage lenders require the insurance, and
the government program is the only placed you can get it! It also leaves those who own homes in those
areas without coverage and completely stops any homes from being sold in those
areas until the program is bailed out.
It’s currently temporarily reauthorized through September 30th,
and no one really knows what will happen to it at that time.
Q: So what should homebuyers and homeowners do
to be smart consumers in these areas?
A: Read your
insurance policy – and don’t just read the section about what is covered. It’s almost more important to read the
section that lists all the hazards and issues that will be excluded from
coverage. Being aware of what is and isn’t covered empowers you to obtain
supplemental coverage, if it’s available.
I would advise homeowners everywhere to look
into flood insurance coverage – do not expect that your homeowners’ policy will
protect you against hurricane damage or other water damage from natural
hazards. 25% of the money that has been paid out under the flood insurance
program since it has been in existence has gone to properties that were located
outside of flood prone areas.
If you’ve owned your home for more than a few
years, you should check the updated flood maps that are being put online to see
if your home is more likely to have flood damage now than it was when you
bought it.
You can check the maps and get more information
about flood insurance from the FEMA website, FEMA.gov
