America’s housing market is deeply troubled despite the strong economy.
L.A. wildfires another reminder: U.S. needs more affordable homeowners insurance system
The homeowners insurance market totals some $15 trillion, with prices up 74% since the Great Recession after adjusting for inflation, per a Harvard study.
For the Minnesota Star Tribune
January 18, 2025 at 1:01PM
The sharp increase in housing costs through the past decade has priced many potential homeowners, including first-time buyers, out of the market. The fundamental problem has been a lack of supply relative to demand. High insurance rates are now raising the cost of a home even more, creating yet another barrier to ownership.
“Insurance functions like a glue that helps the housing finance system stick together,” wrote Steve Koller, postdoctoral fellow in climate and housing at the Joint Center for Housing at Harvard University. “In short, insurance helps make homeownership possible and preserves hard-earned home equity when hazards strike.”
High premiums and homeowners insurance deserts (areas insurers have abandoned) reflect the scale and scope of natural catastrophes in recent decades. The bill is steep to pay for the damage from natural disasters, considering the increased economic wealth in many affected regions and higher expenses for home repairs and rebuilding. The potent combination of climate change and economic wealth is driving prices higher (and insurers need to charge risk-adjusted premiums).
The latest catastrophe is the devastating fires in Los Angeles. The loss of life is horrific, and, as I wrote this column earlier this week, fierce winds were still fanning the flames that continued to destroy more homes and take more lives. Rebuilding devastated neighborhoods will be a monumental task.
The homeowners’ insurance market totals some $15 trillion, and almost 85% of homeowners pay premiums. Homeowners’ insurance prices are up 74%, while home prices have increased more than 40% since the Great Recession, after adjusting for inflation, according to Koller. Insurance companies have pulled back from markets like California and Florida.
The Federal Reserve Bank of Minneapolis noted states with the most rapid increases in premiums since 2017 are mostly west of the Mississippi in areas prone to tornadoes, hail or wildfires. In the Fed’s Ninth District, South Dakota, Minnesota and Montana have seen premiums increase faster than the national average.
Homeowners insurance has become a major budget item for existing and future homeowners. The personal finance advice to comparison shop for the best terms and coverage is compelling. The outcome can make a big financial difference.
That said, the situation isn’t sustainable. High premiums will create an incentive for individuals, industries, regulators and legislators to finally take climate change seriously and innovate a more sustainable and affordable homeowners insurance system.
Chris Farrell is senior economics contributor for “Marketplace” and a commentator for Minnesota Public Radio.
The latest challenge is in Victoria, where a resident is challenging a neighbor’s plan to build a 6,000-square-foot garage with space for dozens of cars.
