Survey: 1 in 4 Homeowners Plans to Sell Within 3 Years

 And 1 in 10 plans to sell this year, according to realtor.com economists. But a fear of finding a home in their price range is the top reason holding many of them back.

CHICAGO – Inventory shortages have plagued markets across the country, but a new survey suggests a turnaround may begin to break for frustrated buyers who can’t find enough homes for sale.

Ten percent of homeowners say they plan to list their home for sale this year, and more than a quarter – 26% – say they plan to list within the next three years, according to a new realtor.com survey from 657 potential home sellers conducted during the week of March 29.

In addition, the homeowners most likely to sell have homes valued below $350,000, which could help relieve inventory woes in a, particularly tight price segment.

“In a typical year, we see about 8% of the nation’s homes hit the market, and we’re expecting about 25% more this year,” says George Ratiu, senior economist at realtor.com. “This signals that many homeowners who were wary to list during the pandemic are getting ready to do so, and this much-needed inventory – especially for starter homes – will begin to relieve buyers’ challenges in a very competitive market.”

While many homeowners seem ready to sell, they’re also hesitant. The biggest reason is a fear that they won’t find a new home within their price range, the survey found. Homeowners also aren’t selling because they’re:

• Not sure where they want to move
• Concerned about the current economic climate
• Worried about the logistics of buying and selling at the same time
• Unsure about showing a home during the pandemic

The majority of homeowners who want to sell in the next two to three years said that they’d be more likely to list their home sooner if they knew they could buy and sell perfectly, according to the realtor.com survey. Also, 37% of homeowners with plans to sell said that if they knew they could make a lot of money on their home sale, that also would be a motivator.

“With home prices at historic highs, now is a great time to sell a home, and many first-time sellers might be surprised to learn how much equity they have,” says Rachel Stults, deputy editor for realtor.com. “For consumers worried about the stress and planning involved, there are a number of resources available to help with everything – from perfectly timing buying and selling to removing the hassles of doing repairs and staging.”

Other factors that could prompt homeowners to sell sooner:

• More affordable homes on the market (33%)
• Avoiding the tricky logistics of buying and selling at the same time (29%)
• Freedom from preparing the home for sale (27%)
• Lower health risks from the COVID-19 pandemic (24%)

Source: realtor.com®

CFPB Postpones Tighter Mortgage Rule Until 2022

 By Kerry Smith

The Qualified Mortgage (QM) final rule, which would generally make it more difficult for some buyers to get a home loan, was pushed back from its July 1, 2021, date.

WASHINGTON – The Consumer Financial Protection Bureau (CFPB) formally postponed its mandatory compliance date for the General Qualified Mortgage (QM) final rule from July 1, 2021, to October 1, 2022.

The CFPB says it postponed the date “to help ensure access to responsible, affordable mortgage credit, and preserve flexibility for consumers affected by the COVID-19 pandemic.”

The QM's goals is to ensure that buyers can afford the mortgage they take out and have the ability to repay it. But at the same time, a new QM update could block some buyers from the home buying process if they no longer qualify under the new lending rules. 

“So many consumers have been hit hard by the pandemic and the economic downturn, and we want to ensure that responsible, affordable mortgages remain available,” says CFPB Acting Director Dave Uejio. “As the mortgage market navigates an uncertain and challenging time, extending the date by which lenders must comply with the CFPB’s new General QM definition will help provide options and flexibility for both lenders and borrowers.”

By following QM rules, banks can sell a home loan in the secondary market, generally Fannie Mae and Freddie Mac. They can then make additional loans to other buyers. As a result, they prefer to make QM loans if they don’t plan to hold onto the loan after closing.

Under the statutes, Fannie and Freddie presume that QM loans were based on the lender’s reasonable determination of the homeowner’s ability to repay it. This delay in the mandatory compliance date of the QM final rule gives lenders more time to offer QM loans based on a homeowners’ debt-to-income (DTI) ratio, and not solely based on certain pricing thresholds.

However, the change announced by the CFPB isn’t the only thing that might affect lending criteria. After July 1, it could also be impacted by recent revisions to the Preferred Stock Purchase Agreements entered into by the Department of the Treasury and the Federal Housing Finance Agency.

Relief on the Way for Buyers? More Sellers Ready to List Homes?

 By David Lyons - South Florida Sun-Sentinel

Analysts think that over the next 6 months, more sellers are ready to list their homes in numbers that could give buyers broader choices and ease home prices.

FORT LAUDERDALE, Fla. – People desperately shopping for homes in South Florida may finally have some luck. Evidence is emerging that sellers who have hibernated for months are ready to list their houses. Over the next six months, enough of them are expected to add to the thinning number of homes for sale that buyers could have broader choices, according to analysts, brokers and home search sites.

Among the encouraging signs:

In a survey released Monday, realtor.com concluded that an “improving landscape” awaits first-time buyers who have been frustrated by soaring prices, as well homeowners who are looking to “trade up” for better digs.

Many sellers have been holding off listing properties for a variety of reasons, including a fear of opening their homes to people who might be carrying the virus. Others were simply riding the wave of higher prices. not wanting to leave money on the table. In many instances, their patience has been rewarded in the form of bidding wars, cash offers and an influx of out-of-town buyers.

“In the high-end market, some people now are considering selling their houses and listing because it’s gotten to the point where there is enough money to decide to sell,” said Miami real estate lawyer Mark Meland of the Meland Budwick law firm.

“They may take some chips off the table,” he said. “Is it enough to satiate the demand? I don’t know.”

The tight supply has helped drive sales of homes in communities under construction.

CC Homes is building 45, low seven-figure luxury homes in Southwest Ranches. Only five are left, said chief operating officer Andrew Miyares.

“Supply remains very tight,” he said. “We started selling in the fall of last year. We’re very pleased with the results so far.”

Much of the allure is the town’s status as a haven for race and show horses and horses for recreational riding. Most of the buyers are “almost exclusively locals” who know the area well. Another development the company is building in concert with Lennar in Miramar is 85% sold out, Miyares said.

George Ritiu, senior economist at realtor.com said the growing distribution of COVID vaccinations should give sellers of existing homes more confidence that the time to list isn’t far off.

“More supply should tame down this incredibly hot price appreciation we have seen for the last eight months,” he said in a telephone interview. “We should basically see a much, much healthier market from May through August.”

He said his firm’s survey also found 58% of the sellers surveyed expected to let go of their homes at prices that are below $350,000, “which is precisely where first-time buyers are frustrated.”

Another 28% said they would sell at between $500,000 and $750,000, which is a “sweet spot for trade-up buyers.”

“It will go a long way to solve this Catch-22 where they want to put their home on the market and they can’t find a replacement,” Ritiu said.

An overvalued market?

Those scenarios could serve as safety valves for a market believed by local analysts to be dramatically overvalued.

In Southeast Florida, homes have been selling for an average of roughly 13% more than they should, according to a report released last week by real estate economist Ken H. Johnson, at Florida Atlantic University in Boca Raton, and Eli Beracha, a professor at Florida International University’s Hollo School of Real Estate in Miami.

Based on an analysis of 25 years, they concluded in a report released last week that properties in Palm Beach, Broward and Miami-Dade counties were overvalued by 12.54% in April, an increase of more than 1% from 11.52% in March.

“While still far below the 65% overpricing achieved at the peak of the historic housing collapse of 2007, the size of the month-to-month jump is a concern,” they said in a statement.

“Prices are clearly accelerating at a pace that could become worrisome,” they said. “While the re-acceleration of prices is extending the current boom, it could cause issues in the local housing market, especially if interest rates should rise because higher rates tend to suppress the demand for housing ownership and therefore housing prices.”

NAR: Record-High Home Prices and Sales Gains in March

 Total existing U.S. home sales were up 12.3% year-over-year while median price was up 17.2%. However, existing home sales fell (-3.7%) in March compared to Feb.

WASHINGTON – Existing-home sales fell in March, marking two consecutive months of declines, according to the National Association of Realtors®. The month of March saw record-high home prices and increases in home sales. While each of the four major U.S. regions experienced month-over-month drops, all four areas welcomed year-over-year gains in home sales.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 3.7% from February to a seasonally adjusted annual rate of 6.01 million in March. Sales overall climbed year-over-year, up 12.3% from a year ago (5.35 million in March 2020).

"Consumers are facing much higher home prices, rising mortgage rates, and falling affordability, however, buyers are still actively in the market," said Lawrence Yun, NAR's chief economist.

"The sales for March would have been measurably higher, had there been more inventory," he added. "Days-on-market are swift, multiple offers are prevalent, and buyer confidence is rising."

Yun said although mortgage rates have risen a tick, they are still at a favorable level and the economic outlook is promising.

"At least half of the adult population has received a COVID-19 vaccination, according to reports, and recent housing starts and job creation data show encouraging dynamics of more supply and strong demand in the housing sector," he said.

The median existing home price for all housing types in March was $329,100, up 17.2% from March 2020 ($280,700), as prices increased in every region. March's national price jump marks 109 straight months of year-over-year gains.

Realtor.com®’s Market Hotness Index, which measures time-on-the-market data and listing views per property, revealed that the hottest metro areas in March were Manchester, N.H.; Concord, N.H.; Vallejo, Calif.; Burlington, N.C.; and Springfield, Ohio.

According to Freddie Mac, the average commitment rate for a 30-year, conventional, fixed-rate mortgage was 3.08% in March, up from 2.81% in February. The average commitment rate across all of 2020 was 3.11%.

Total housing inventory at the end of March amounted to 1.07 million units, up 3.9% from February's inventory and down 28.2% from one year ago (1.49 million). Unsold inventory sits at a 2.1-month supply at the current sales pace, marginally up from February's 2.0-month supply and down from the 3.3-month supply recorded in March 2020. Inventory numbers continue to represent near-historic lows; NAR first began tracking the single-family home supply in 1982.

"Without an increase in supply, the society wealth division will widen with homeowners enjoying sizable equity gains while renters will struggle to become homeowners," Yun said.

Properties typically remained on the market for 18 days in March, down from 20 days in February and from 29 days in March 2020. Eighty-three percent of the homes sold in March 2021 were on the market for less than a month.

First-time buyers were responsible for 32% of sales in March, up from 31% in February and down from 34% in March 2020. NAR's 2020 Profile of Home Buyers and Sellers – released in late 2020 – revealed that the annual share of first-time buyers was 31%.

Individual investors or second-home buyers, who account for many cash sales, purchased 15% of homes in March, down from 17% in February and up from 13% in March 2020. All-cash sales accounted for 23% of transactions in March, up from both 22% in February and from 19% in March 2020.

Distressed sales – foreclosures and short sales – represented less than 1% of sales in March, equal to February's percentage but down from 3% in March 2020.

Single-family and condo/co-op sales

Single-family home sales decreased to a seasonally adjusted annual rate of 5.30 million in March, down 4.3% from 5.54 million in February, and up 10.4% from one year ago. The median existing single-family home price was $334,500 in March, up 18.4% from March 2020.

Existing condominium and co-op sales were recorded at a seasonally adjusted annual rate of 710,000 units in March, up 1.4% from February and up 29.1% from one year ago. The median existing condo price was $289,000 in March, an increase of 9.6% from a year ago.

"NAR has made it a priority to be at the forefront of the anticipated economic revival," said NAR President Charlie Oppler. "We will continue pushing for an increase in housing construction and inventory, with the goal of helping qualified buyers and countless families achieve the American Dream of homeownership."

Regional breakdown

In comparison to one year ago, median home prices rose in each of the four major regions.

March 2021 saw existing-home sales in the Northeast slip 1.3%, recording an annual rate of 760,000, a 16.9% jump from a year ago. The median price in the Northeast was $364,800, up 21.4% from March 2020.

Existing-home sales in the Midwest declined 2.3% to an annual rate of 1,280,000 in March, a 0.8% rise from a year ago. The median price in the Midwest was $248,200, a 13.5% increase from March 2020.

Existing-home sales in the South dropped 2.9%, recording an annual rate of 2,700,000 in March, up 15.9% from the same time one year ago. The median price in the South was $283,900, a 15.6% climb from a year ago.

Existing-home sales in the West fell 8.0% from the month prior, posting an annual rate of 1,270,000 in March, a 15.5% rise from a year ago. The median price in the West was $493,300, up 16.8% from March 2020.

© 2021 Florida Realtors

U.S. Average Mortgage Rates Under 3% for First Time Since Feb.

 The 30-year rate was 2.97% this week, down from 3.04% last week. Despite these low rates, many buyers are unable to purchase a home due to the shortage of inventory.

McLEAN, Va. (AP) – Mortgage rates fell for the third straight week, dipping below 3% for the first time in two months.

Mortgage buyer Freddie Mac reported Thursday that the benchmark 30-year home-loan rate declined to 2.97% this week from 3.04% last week. At this time last year, the long-term rate was 3.33%.

The rate for a 15-year loan, popular among those looking to refinance, dipped to 2.29% from 2.35% the week before. Experts have expected home-loan rates to increase modestly in the short term, while remaining at low levels in light of the Federal Reserve’s goal of keeping its principal borrowing rate near zero until the economy recovers from the pandemic.

Even with historically low rates, buyers are having a hard time snatching up homes because there are so few for sale. Another report Thursday from the National Association of Realtors showed that sales of existing home sales fell for the second straight month in March because there are so few on the market. The coronavirus pandemic has fueled demand for single-family homes as people look for more space.

On the bright side, the Labor Department reported Thursday that the number of Americans applying for unemployment aid fell last week to 547,000, the lowest point since the pandemic struck and an encouraging sign that layoffs are slowing on the strength of an improving job market. Copyright © 2021 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

Report: Three-fourths of all 2019 property insurance suits in U.S. were filed in Florida

 By John Haughey | The Center Square contributor Apr 13, 2021

(The Center Square) – In 2019, Florida homeowners accounted for 8.16 percent of the nation’s property insurance claims, but more than 76 percent of property insurance lawsuits lodged against insurers.

Pointing to this “disparity,” Florida Insurance Commissioner David Altmaier in a five-page April 2 letter to House Commerce Committee Chair Rep. Blaise Ingoglia, R-Spring Hill, outlined four proposals to reduce property insurance litigation.

Insurers cite rampant litigation, ballooning reinsurance costs, “loss creep” from 2017-18 hurricanes and coastal flooding as a “perform storm” of coalescing factors leading to double-digit property insurance rate hikes that Florida businesses and 6.2 million homeowners are seeing or will see when renewing policies.

Several of Altmeier's recommendations are already being considered by lawmakers.

Senate Bill 76, filed by Sen. Jim Boyd, R-Bradenton, restricts awarding contingency risk multipliers only “in a rare and exceptional circumstance,” requires policy-holders file claims within two years, down from three, and creates a “reimbursement schedule” that allows insurers to sell policies with reduced payments for roofs over 10-years-old.

SB 76 was passed by Senate April 7 in a 27-13 vote and transmitted to the House where another insurance reform bill is headed to the chamber floor.

House Bill 305, sponsored by Rep. Bob Rommel, R-Naples, does not address contingency risk multipliers or include the roof “reimbursement schedule.” It awaits a hearing before the Commerce Committee to advance to a House vote.

Florida law allows plaintiffs to collect attorney fees when they prevail in cases against insurers. Amounts are determined by the number of hours an attorney spent on a case and a reasonable hourly rate. But courts also can also increase fees through contingency risk multipliers.

Altmeier said the OIR reviewed a National Association of Insurance Commissioners Market Conduct Annual Statement (MCAS) Data Call spanning 2016-19 and verified that “in 2019, Florida accounted for 8.16 percent of all homeowners’ claims opened by insurance companies in the U.S.

“However,” he added, “in 2019, Florida accounted for 76.45 percent of all homeowners’ suits opened against insurance companies in the U.S.”

The MCAS documents the ratio of claims closed without payment to total claims closed, and the ratio of suits opened to claims closed without payment, Altmeier said.

Florida “trends along with the national average” in claims closed without payments, he writes but “Florida’s ratio of suits opened to claims closed without payment is eight times higher than the next highest state at 27.75 percent.”

• Reform Florida’s one-way attorney’s fees statute: “The current one-way attorney’s fees statute provides an incentive for litigation to come before our judicial system that may not always be legitimate,” he writes.

• Address contingency fee multipliers: Altmeier maintains 2017’s ruling in Joyce v. Federated Nat’l Co., which upheld Florida’s contingency risk multipliers, “highlights just how far Florida has diverged from the federal standard.”

• Address ‘concurrent causation’: The 2016 ruling in Sebo v. Am. Home Assurance Co. Inc. “has incentivized roof claim solicitations” under “the concurrent causation doctrine and held insurance coverage may exist when there are concurrent causes of loss and at least one cause is covered under the policy,” Altmeier writes.

Excluding “wear and tear” from concurrent causation “could also provide a disincentive for this behavior, while allowing consumers to keep replacement cost coverage for legitimate roof losses,” he suggests.

• Adopt provisions from Texas HB 1774: Texas lawmakers imposed inspection requirements for property claims and addressed attorney’s fees in the 2017 measure, which requires claimants to notify insurers of potential litigation at least 61 days before filing suit.

Home prices hit 15-year high nationwide

 

by Jason Porterfield

Driven by high demand, single-family home prices in cities such as Miami reached their highest year-over-year increase in 15 years in February, according to the latest CoreLogic Home Price Index report.

Nationally, home prices increased by an average of 10.4% over the previous year, representing the largest year-over-year gain since April 2006. Prices were up an average of 1.2% month-over-month from January.

Prices in the Miami metro area were up 7.0% over February 2020. CoreLogic classified Houston’s market as “overvalued.”

“Homebuyers are experiencing the most competitive housing market we’ve seen since the Great Recession,” said CoreLogic president and CEO Frank Martell. “Rising mortgage rates and severe supply constraints are pushing already-overheated home prices out of reach for some prospective buyers, especially in more expensive metro areas. As affordability challenges persist, we may see more potential homebuyers priced out of the market and a possible slowing of price growth on the horizon.”

Cities that are already experiencing a major price crunch, such as Los Angeles, Phoenix, and Seattle experienced greater increases. Prices rose by 16.2% in Phoenix, by 12.5% in Seattle and by 8.2% in Los Angeles. Affordability concerns already are pushing some homebuyers out of major markets and into the suburbs, including would-be homebuyers in Los Angeles.

CoreLogic predicts that home prices will increase by another 3.2% by next February as inventory shortages persist and demand remains high, though cost increases could slow as the pandemic wanes and more properties hit the market.

“The run-up in home prices is good news for current homeowners but sobering for prospective buyers,” said CoreLogic chief economist Dr. Frank Nothaft. “Those looking to buy need to save for a down payment, closing costs and cash reserves, all of which are much higher as home prices go up. Add to that a rise in mortgage rates and the affordability challenge for first-time buyers becomes even greater.”

CFPB Proposes Rules to Prevent or Delay Foreclosures

 By Kerry Smith

After warning mortgage servicers not to repeat their Great Recession mistakes, the consumer bureau proposed actual rules to prohibit starting foreclosures before Dec. 31, 2021, with a few possible exceptions – such as proof that they’ve unsuccessfully tried to contact unresponsive owners.

WASHINGTON, D.C. – The U.S. Consumer Financial Protection Bureau (CFPB) proposed a set of rule changes on Monday designed to “help prevent avoidable foreclosures as the emergency federal foreclosure protections expire.”

CFPB says it created the proposed rules to make sure servicers and borrowers have “the tools and time” to “work together to prevent avoidable foreclosures.” It says it created the rules anticipating that a surge of borrowers will reach the end of forbearance options this fall.

“Last week we warned that servicers need to be prepared for a high volume of borrowers exiting forbearance, and today we are proposing additional guardrails and tools for servicers as they navigate the coming months,” says CFPB Acting Director Dave Uejio. “We will do everything in our power to ensure servicers work with struggling families to find solutions that prevent avoidable foreclosures.”

About 6% of mortgages were delinquent as of December 2020, and data suggests that nearly 1.7 million borrowers will exit forbearance programs starting in September – more than half of the nearly 3 million estimated borrowers in foreclosure.

CFPB has also posted a shorter document, called Fast Facts: 2021 Mortgage Servicing COVID-19 Proposed Rule, on its website.

CFPB rules proposed

• Give borrowers time: Give every borrower behind on their mortgage a chance to explore ways to resume making payments and avoid foreclosure. The proposed rule would create a special pre-foreclosure review period that generally prohibits servicers from starting foreclosures until after Dec. 31, 2021. During the rule comment period, the CFPB says it wants to hear from the public on whether there are “more limited ways to achieve the same purpose.” Should it, for example, allow earlier foreclosures if the servicer has taken certain steps to evaluate the borrower for loss mitigation or tried to contact an unresponsive borrower? This provision only applies to loans secured by a borrower’s principal residence.
• Give servicers options: The proposed rule would allow servicers to offer approved streamlined loan modification options to borrowers with COVID-19-related hardships based on the evaluation of an incomplete application. In most cases, Regulation X requires servicers to review all available options at once, forcing borrowers to submit more documents before a servicer can make a decision. CFPB says this change would  allow servicers to get borrowers into an affordable mortgage payments faster with less paperwork. However, the provision would only work if the borrower’s monthly payment doesn’t go up, and the loan isn’t extended for more than 40 months from the modification’s effective date.
• Keep borrowers informed of their options: The CFPB also proposes temporary changes to some required servicer communications to make sure borrowers receive key information about their options.

In the compliance bulletin issued last week, CFPB warned mortgage servicers to dedicate resources and staff to prepare for a surge in assistance requests and said it will be closely monitoring servicers for compliance.

Spring Season? Listings Down 70% in 2 Florida Metros

 Buyers often set their sights on spring, but unless sellers join in, this year’s shoppers will have 50% fewer homes, on average, to consider buying.

WASHINGTON – If buyers are struggling to find a home for sale, at least they’re not alone. For every 10 homes listed for sale last year, there are fewer than five today. Nationwide, home shoppers this spring have 52% fewer homes to choose from than last year’s home shoppers did – and they’re facing record-breaking prices, according to realtor.com’s latest Monthly Housing Trends Report.

In some Florida cities, the problem is even worse, with Jacksonville at the top of the list. According to realtor.com, their ad site has almost 71% fewer listings for Northeast Florida shoppers than it did last year

Florida cities’ year-to-year changes on realtor.com

• Jacksonville: Prices up 10.4%, number of listings down 70.7%
• Miami-Fort Lauderdale-West Palm Beach: Prices down 1.2%, number of listings down 42%
• Orlando-Kissimmee-Sanford: Prices up 11.75%, number of listings down 45.8%
• Tampa-St. Petersburg-Clearwater: Prices up 15.2%, number of listings down 69.9%

Because of high demand and low inventory, “home prices have skyrocketed, shattering previous records,” says Danielle Hale, realtor.com’s chief economist. “We expect to see more sellers emerge in the weeks ahead, which should give buyers more options. Homes will likely continue to sell fast, but increasing interest rates and monthly costs could slow the pace of price gains unless we see a boost in demand from equity-rich repeat buyers.”

Homebuyers appear to be in a hurry, trying to buy before any further increases in home prices and mortgage rates, which have moved above their sub-3% averages over recent weeks.

But finding a home hasn’t been easy. “In many areas of the country, there are half as many available homes for sale than a year ago – and in some markets that number increases to less than one-third,” Hale says.

Source: National Association of Realtors® (NAR)

© 2021 Florida Realtors®

FEMA Releases Rate Overview for Flood Insurance Risk 2.0

By Kerry Smith.

 FEMA did not release a tool to answer the question on most Fla. homeowners' minds: “Will my flood insurance rate go up or down?” But overall, it says 1 out of 5 residents (19.8%) will see a reduction, and 3 out of 4 (76%) won’t see a change higher than $120 more per year.

ORLANDO, Fla. – The Federal Emergency Management Agency (FEMA) announced an overview of flood insurance premium rate increases – Risk Rating 2.0: Equity in Action, part of the National Flood Insurance Program (NFIP) – that will go into effect on Oct. 1, 2021.

The announcement doesn’t answer a question on many Florida homeowners' minds: “How much more will flood insurance cost for my home?” Or, alternately, “How much might I save?”

However, it provides an overview of the changes Floridians can expect, and one out of five Florida homeowners (19.8%) should see a decrease in their yearly NFIP cost. One out of 25 (4.2%), however, should see a yearly rate increase greater than $240.

But even that increase doesn’t paint a clear picture for current homeowners with NFIP coverage. Policy costs often go up when renewed, and the 2.0 yearly increase of $120 could actually be less than they’d pay without a pricing structure change.

A PDF overview of Risk Rating 2.0’s impact on Florida is posted on FEMA’s website.

FEMA’s expected changes in Florida flood insurance costs per year

• 19.8%: Lower flood insurance costs
• 68.1%: Either no change or a yearly increase less than $120
• 7.8%: A premium increase between $120 and $240 per year
• 4.2%: A premium increase greater than $240 per year

FEMA also says homebuyers don’t have to suffer sticker shock after closing. It plans to include the current elements of NFIP coverage in its new plan:

• Over time, most rates won’t increase more than statutory limits of 18% per year.
• Flood mapping will continue because FEMA uses it for its catastrophe models under Risk Rating 2.0 and mandatory building requirements in hazard areas. Most mortgage lenders will also continue to require buyers of flood-zone properties to have flood insurance.
• FEMA says it will still offer “premium discounts for Pre-FIRM subsidized, newly mapped and continuous coverage grandfathering.”
• NFIP coverage can still be transferred (including any discounts) from a seller to a buyer when a home sells.
• Residents of communities that mitigate flood risks under FEMA’s Community Rating System will continue to receive discounted rates.

When is FEMA doing this?

Phase I: Starting on Oct. 1, 2021, new policies will be subject to the 2.0 rating method. At the same time, existing policyholders eligible for renewal will be able to take advantage of immediate decreases in their premiums.

Phase II: All NFIP policies not included in Phase I will be subject to the new rating method on or after April 1, 2022.  

Why is FEMA doing this?

Since the 1970s, a home’s flood insurance cost was based on its elevation and zone within a FEMA Flood Insurance Rate Map (FIRM). FEMA says a one-size-fits-all rate policy means that “policyholders with higher-valued homes are paying less than their share of the risk,” and “policyholders with lower-valued homes are paying more than their share of the risk.”

FEMA calls Risk Rating 2.0 a “transformational leap forward” because it will work similar to existing property insurance policies in which every homeowner receives an individualized price quote.

In addition to elevation and flood zone, FEMA says a 2.0 coverage quote will also consider “flood frequency, multiple flood types – river overflow, storm surge, coastal erosion and heavy rainfall – and distance to a water source, along with property characteristics such as elevation and the cost to rebuild. … FEMA is building on years of investment in flood hazard information by incorporating private sector data sets, catastrophe models and evolving actuarial science.”

“The new pricing methodology is the right thing to do,” Senior Executive of NFIP David Maurstad said in a statement announcing the update. “It mitigates risk, delivers equitable rates and advances the agency’s goal to reduce suffering after flooding disasters. Equity in Action is the generational change we need to spur action now.”

© 2021 Florida Realtors®