TALLAHASSEE, Fla. (AP) — Florida’s property insurance market was already in peril. Now comes Hurricane Ian.
The massive storm that barreled into southwest Florida delivering catastrophic winds, rain and flooding is likely to further damage the insurance market in the state, which has strained under billion-dollar losses, insolvencies and skyrocketing premiums.
The scale of the storm’s destruction will become more clear in the coming days but there is concern it could exacerbate existing problems and burden a state insurance program that has already seen a sharp increase in policies as homeowners struggle to find coverage in the private market.
“Florida’s property insurance market was the most volatile in the U.S. before Hurricane Ian formed and will most likely become even more unstable in the wake of the storm,” said Mark Friedlander, communications director at the Insurance Information Institute.
The private insurance industry has lost more than $1 billion in each of the last two years and hundreds of thousands of Floridians have had their policies dropped or not renewed. Average annual premiums have risen to more than $4,200 in Florida, triple the national average.
More than a dozen companies have stopped writing new policies in the state, and several have closed shop this year. One company was declared insolvent and placed into receivership this week, as Ian was churning toward Florida.
Homeowners unable to get coverage or priced out of plans have flocked to the state’s public insurer of last resort, Citizens Property Insurance, which this summer topped 1 million policies for the first time in almost a decade. Citizens Property Insurance was created by the state legislature in 2002 for Floridians unable to find coverage from private insurers.
State regulators and insurers have long blamed lawsuits by homeowners as a major culprit in the state’s crisis. They say state law makes it highly profitable for lawyers to sue insurance companies even if the amount won is relatively small. In the last half of the 2010s, Florida accounted for about 8% of all homeowners’ claims in the U.S. but almost 80% of all homeowners’ lawsuits against insurers in the U.S., according to a letter from the state Office of Insurance Regular.
In May, with hurricane season approaching, the state legislature convened for a special session to address the insurance crisis. In three days, with little public input or expert analysis, lawmakers approved sweeping legislation with bipartisan support that many in the statehouse regarded as a meaningful first step in repairing the market.
Among the provisions was the creation of a $2 billion reinsurance program that insurers could buy into to help insulate themselves from risk, so long as they reduced rates for policyholders. The law offers grants of up to $10,000 to retrofit homes so they are less vulnerable to hurricane damage. It also moves to limit various attorney fees in insurance-related lawsuits.
Even so, Florida’s primary rating agency, Demotech, this summer threatened downgrades to around two dozen companies. But concerns about their creditworthiness faded somewhat after the administration of Gov. Ron DeSantis agreed to allow the state to back up the insurers.
DeSantis, during news conferences ahead of the storm, noted that flood claims could be a leading problem from Ian.
Home insurance policies — including those in Citizens — do not include flood coverage, which is handled under a federal program and is separate issue from the insurance market. The federally-backed flood insurance is generally mandated for mortgaged homes in flood zones, but people who fully own their homes sometimes decline to get it and it’s less common in areas not usually prone to flooding.
“We are looking at a lot of flood claims,” the governor said when asked about the potential for claims to overrun Citizens Property Insurance. “I’m not saying there’s not going to be a lot of wind damage, I mean it’s a hurricane so you’re likely to see that.
“There’s more that I want to do in terms of the wind insurance and that will be something we’re going to address. I mean look, at the end of the day we’ve got to make sure folks are taken care of, and so we will do that, whatever we need to do.”
DeSantis, at a news conference Wednesday, said Citizens Property Insurance should be in solid shape even after claims from Hurricane Ian, given that the state-backed company has billions of dollars in surplus. A spokesman for Citizens said it estimates 225,000 claims and $3.8 billion in losses from Ian, though he noted those projections were made before the storm made landfall and would likely change as damaged is fully assessed.
“Their modeling, based on paying out a lot of money in claims for this, was that they would still have between 4 and 5 billion in surplus. So they view themselves as being able to weather this,” DeSantis said.
More than 2.5 million people in Florida were under mandatory evacuation orders when Ian made landfall Wednesday afternoon. Some residents left their homes, hoping for minimal damage upon their return.
“I just don’t see the advantage of sitting there in the dark, in a hot house, watching water come in your house,” said Tom Hawver, a handyman in Fort Myers, who evacuated his home Wednesday. “And I can’t do anything about the wind or the water, so I’ll go back in a couple of days and assess it.”
In South Florida, median prices fell a bit in August, and many licensees see that as a good thing after months of price increases that were “neither normal nor sustainable.”
MIAMI – Housing prices fell again last month in Miami-Dade County and dipped for the first time in months in neighboring Broward County, an uplifting sign for aspiring home buyers.
Miami-Dade’s median sale price dwindled to $551,250 for a single-family home in August, down from $570,000 the prior month, according to the monthly sales report released Wednesday by the Miami Association of Realtors. Condominium prices also dropped to a $375,000 midpoint from $380,000 in July.
The price decreases in Miami-Dade represent the second consecutive month, after climbing steadily from September through June and reaching historic high marks of $579,000 for a house and $410,000 for a condo.
“Prices never go up forever,” said Ana Bozovic, founder and real estate market analyst at Analytics Miami. “The steady ramp up we have had through mid-2022 was neither normal nor sustainable.”
In August, Broward showed the first signs of a softening residential real estate market. Although condo prices held steady at a $265,000 median, the midpoint sale price for a house fell to $562,500 from $600,000 in July.
The South Florida housing market has overheated during the two-year pandemic due to a tight supply of available homes and an influx of out-of-state buyers who decided to call the area their new home. That pushed demand and prices up since many of these newcomers outbid local residents and paid cash for houses and condos.
The pandemic-induced dramatic shift in the white-collar workplace from office buildings to homes allowing technology, finance, legal professionals and others to work remotely from anywhere during the pandemic has sharply worsened a housing-affordability crisis in South Florida that began well before the coronavirus emerged in March 2020.
Natives and longtime residents in Miami-Dade and Broward have been waiting on the sidelines, betting the runaway housing prices would eventually settle down.
For now, South Florida still has slim pickings for people determined to buy a home. Miami-Dade has an available inventory of 3.3 months of houses and 3.4 months of condos. Broward has supplies of 2.5 months of houses and 2.1 months of condos. This is far from a balanced market, which typically has five to seven months of housing supply to purchase.
Total housing sale transactions did increase from July to August across the region. Miami-Dade reported 2,505 sales, up from 2,375, while Broward recorded 2,700 transactions, higher than the 2,575 in July. Keeping with a longer trend, nearly half of the buyers last month paid for homes in cash – to likely avoid rising interest rates on mortgages, experts say – in both Miami-Dade and Broward.
Florida Atlantic University finance professor Ken H. Johnson, an expert on the real estate market, said interest rates will continue increasing through the remainder of the year.
On Wednesday, the Federal Reserve announced its fifth bump in its benchmark interest rate in 2022, the third increase of three-quarters of 1% – aggressive moves to try to curtail lingering consumer price inflation. The Fed’s rate hikes have pushed 30-year conventional mortgages to an average of 6%, double the mark from a year ago and the highest level since 2008.
Johnson thinks part of the Fed’s inflation-fighting strategy to keep raising interest rates is to limit consumer buying power. One element of the Fed’s thinking, he said, is that as mortgage rates go up fewer people will borrow against the equity in their homes via home equity lines of credit.
“The Fed is aware that we have the availability of credit being driven by the size of equities in our home and the Fed is worried about building bigger lines of credit,” Johnson said. “Many of us worry that this is creating another form of money supply that the Fed doesn’t have control over.”
Meanwhile, Joey Francilus, a North Miami native and digital strategist, has been shopping for a home but is reassessing the timeline due to interest rate jumps and protracted consumer price increases. The 32-year-old wants to buy by late 2023 a three-bedroom, two-bathroom house in North Miami, similar to the home where he grew up. His mother, Marie Severe Jean-Francois, emigrated from Haiti to New York City in 1979 and soon after moved to Miami. She bought her home in 1998 for $88,000. Today, it’s valued at $400,000.
Francilus fears the South Florida newcomers with deep pockets are continuing to force out longtime residents like him.
“We can have growth,” he said, of the housing market. “But if we’re pricing out the very people who make this town what it is, then what’s the cost? We’re losing our essence, if the people who make this town can’t afford to live here.”
George Washington University School of Business Professor Vanessa Perry studies the homeownership gap and thinks that aspiring first-time home buyers like Francilus are hindered more than others by higher mortgage rates.
“That’s a particular constraint we are dealing with now, because house prices are so high and we’re seeing such enormous rates of house price appreciation over the pandemic,” Perry said. “It makes it even more difficult for the first-time home buyer to enter the market, because they need a mortgage to buy a home and qualifying for that mortgage is even more difficult than it was a year ago.”
The national Home Price index reported a 15.8% annual gain in July, down from 18.1% in June – the largest price deceleration in the history of the index.
NEW YORK – S&P Dow Jones Indices (S&P DJI) released its July report on U.S. home prices, finding that home price gains decelerated across the United States at the fastest pace in more than 27 years of history.
The S&P CoreLogic Case-Shiller index, which covers all nine U.S. census divisions, reported a 15.8% annual gain in July, down from 18.1% in the previous month. The 10-City Composite annual increase came in at 14.9%, down from 17.4% the previous month. The 20-City Composite posted a 16.1% year-over-year gain, down from 18.7% the previous month.
Florida cities saw less of a price deceleration. Tampa and Miami reported the highest year-over-year gains among the 20 cities in July. Tampa led the way with a 31.8% year-over-year price increase, followed by Miami in second with a 31.7% increase.
All 20 cities reported lower price increases in the year ending July 2022 versus the year ending June 2022.
“Although U.S. housing prices remain substantially above their year-ago levels, July’s report reflects a forceful deceleration,” says Craig J. Lazzara, managing director at S&P DJI. “For example, while the National Composite Index rose by 15.8% in the 12 months ended July 2022, its year-over-year price rise in June was 18.1%. The -2.3% difference between those two monthly rates of gain is the largest deceleration in the history of the index.”
Lazzara says the 10-year and 20-year indexes showed similar results. The 10-year was up 14.9% in July vs. 17.4% in June and the 20-City Composite was up 16.1% in July vs. 18.7% in June.
On a month-over-month basis, all three composites declined in July.
July’s year-over-year price change was positive for each one of the 20 cities with a median gain of 15.0%, but in every case, July’s gain was less than June’s,” says Lazzara. “Prices declined in 12 cities on a month-to-month basis. Tampa (up 31.8%) narrowly edged Miami (up 31.7%) to remain at the top of the league table for the fifth consecutive month, with Dallas (up 24.7%) holding on to third place.
As has been the case for the last several months, price growth was strongest in the Southeast (up 27.5%) and South (up 26.9%).”
Before seasonal adjustment, the U.S. National Index posted a -0.3% month-over-month decrease in July, while the 10-City and 20-City Composites both posted decreases of -0.8%.
After seasonal adjustment, the U.S. National Index posted a month-over-month decrease of -0.2%, and the 10-City and 20-City Composites posted decreases of -0.5% and -0.4%, respectively.
In July, only 7 cities reported increases before and after seasonal adjustments.
“As the Federal Reserve continues to move interest rates upward, mortgage financing has become more expensive, a process that continues to this day,” adds Lazzara. “Given the prospects for a more challenging macroeconomic environment, home prices may well continue to decelerate.”
If a metro saw pandemic-era sales surge, it’s more likely to have skittish buyers canceling contracts in August In Jacksonville, 1 out of 4 buyers walked away.
SEATTLE – Nationwide, roughly 64,000 home-purchase agreements fell through in August – 15.2% of homes that went under contract that month. That’s up from 12.1% a year earlier and is comparable with July’s revised rate of 15.5%, according to a new report from Redfin.
The percentage has hovered around 15% for three months in a row – the highest level on record with the exception of March and April 2020, when the onset of the coronavirus pandemic brought the housing market to a near standstill. Before the pandemic, it was consistently around 12% going back through 2017.
Homebuyers were most likely to back out of deals in Sun Belt cities that surged in popularity and price during the pandemic, such as Phoenix, Tampa, and Las Vegas. They were least likely to back out in pricey coastal hubs like San Francisco and New York, which went out of vogue during the pandemic but are now making a comeback as workers return to the office.
A slowing housing market allows more buyers to bow out of deals because they often don’t need to waive important contract contingencies in order to compete in bidding wars. As more buyers include inspection, financing and appraisal contingencies in their contract, a higher percentage can now cancel the purchase if there’s an issue, such as a failure to secure a mortgage or problems because the appraisal is different from the agreed-upon selling price.
Some buyers may also be backing out of deals because they’re waiting to see if home prices fall.
Surging mortgage rates may also be a factor. The average 30-year-fixed mortgage rate hit 6.29% last week – the highest since 2008 – sending the typical homebuyer’s monthly mortgage payment up 45% from a year ago.
“Some homebuyers are finding that by the time they go under contract and lock in their mortgage rates, rates could be much higher than they were when they toured the home and/or got pre-approved. That can kill the deal because the buyer is no longer financially comfortable with the purchase,” says Sam Chute, a Redfin real estate agent who works with sellers in Miami.
In Jacksonville, roughly 800 home-purchase agreements were called off in August, equal to one out of every four home transactions (26.1%) that went under contract that month. It’s the highest percentage among the 50 most populous U.S. metropolitan areas. Next came Las Vegas (23%), Atlanta (22.6%), Orlando (21.9%), Fort Lauderdale (21.7%), Phoenix (21.6%), Tampa (21.5%) and four Texas metros: Fort Worth (21.5%), San Antonio (21.1%) and Houston (20.6%).
Redfin says four of those 10 metros – Las Vegas, Phoenix, Tampa, and San Antonio – have consistently ranked on its list of top migration destinations. They initially attracted buyers because they were relatively affordable, but an influx of demand caused prices to skyrocket.
Many of the metros where deal cancellations are least common are metros that saw people leave during the pandemic, including the Bay Area and New York.
Newark, New Jersey, had the lowest percentage of deal cancellations (2.7%), followed by San Francisco (4.2%), Nassau County, New York (6.1%), New York (7%), Montgomery County, Pennsylvania (7.6%), San Jose, California (8.2%), Milwaukee (8.9%), Oakland, California (9.2%), Boston (10.1%) and Seattle (10.3%).
At 10.7%, Orlando came closest to the national year-to-year rise of 11%. It was 10.3% in South Florida counties – and median rents actually fell 1.8% in Jacksonville.
SEATTLE – U.S. asking rents climbed to a record high in August, but the rate of rent growth moderated for the third-straight month.
National median asking rent was up 11% year-over-year to $2,039, according to a new report from Redfin – the smallest annual increase in a year, down from a peak gain of 19% in March. On a month-over-month basis, the median asking rent climbed 0.4%, the slowest growth since December 2021 and down from 1.6% a year earlier.
In Florida, however, rent growth lagged the U.S. rate. In one city, Jacksonville, Redfin says rents actually declined year-to-year, dropping 1.8%.
Florida metros year-over-year change in rent
Orlando: Up 10.7% (Median rent of $2,153)
Miami: Up 10.3% ($3,027)
Fort Lauderdale: Up 10.3% ($3,027)
West Palm Beach: Up 10.3% ($3,027)
Tampa: Up 5.3% ($2,186)
Jacksonville: Down 1.8% ($1,652)
“Rent growth will likely slow further as the Federal Reserve continues to raise interest rates,” says Redfin Deputy Chief Economist Taylor Marr. “Higher interest rates impact the rental market because they put a damper on spending power in the economy as a whole, including renters’ budgets.”
A boost in rental supply will also likely slow the pace of rent increases. “There are nearly a million rental units under construction that will hit the market in the coming months and years,” says Marr.
Top 10 metro areas for fastest-rising rents
Cincinnati, Ohio: 26%
Indianapolis, Indiana: 21%
Nashville, Tennessee: 20%
Portland, Oregon: 19%
New York City: 18%
Newark, New Jersey: 18%
Nassau County, New York: 18%
New Brunswick, New Jersey: 18%
San Antonio, Texas: 17%
Four of the 50 most populous metro areas saw rents fall in August year-to-year, including Jacksonville:
Even as the housing-price runup slows, middle-class buyers - in the West and elsewhere – are still struggling to find a home they can afford where they want to live.
RAPID CITY, S.D. – Homeownership remains Americans’ top financial priority, but many would-be buyers in the West see little chance of achieving that goal.
Even as the historic housing-price runup slows, middle-class buyers are struggling like never before to find a home they can afford in a place where they want to live.
House-hunters are finding fewer homes for sale as builders ease off on new construction, and when they do put in bids they find themselves competing against out-of-state investors whose all-cash offers are hard for sellers to resist.
Landlords are jumping into the frenzy and selling rental properties, driving apartment availability down and rents up.
This imperfect storm has sparked a housing affordability crisis that is especially severe in western states, where the cost of buying a home has spiked as much as 25% in some cities in just the past year.
In western Montana’s Ravalli County, the median home sales price went from $309,000 in 2019 to $682,500 in June of 2022, according to the Missoula Organization of Realtors. That’s a 120.8% increase.
Despite rising prices, however, the desire for home ownership remains strong.
“Asked to rank the hallmarks of economic prosperity, 74 percent of Americans say they place the highest priority on owning a home,” an analysis by New York-based Bankrate says. That outranks the ability to retire (66%), have a successful career (60%), own an automobile (50%), have children (40%) and get a college degree (35%).
Napa, California house hunters Adam Padilla and Caroline Helper were among that group. They started looking to buy a house in the spring, but their bids were repeatedly rejected.
“I was very discouraged,” Padilla said. “We’re trying to build a life here and be a part of the community … but Napa is trying to push us out. It felt like we weren’t welcome.”
They ended up buying a house for $75,000 over the listing price of $575,000.
“I knew that was the game we were playing,” Padilla said. “The listing price was never the asking price; it was the starting price.”
How we got here
The inventory of homes for sale was already tight as the nation slowly recovered from the 2008 housing crash.
Construction on new infill houses, subdivisions and even master-planned communities started once again in 2015 and 2016.
Then came the COVID-19 pandemic, which changed everything.
Unsure what the broad lockdowns and closures of businesses and schools would mean for new housing, many homebuilders paused construction in early 2020.
The federal government stimulated the economy with checks, mortgages were forgiven for a time, and interest rates dropped.
That resulted in growing savings accounts and, as weeks turned into months at home, juggling a laptop and a toddler, many people decided it was time to move up from an apartment to a house, or to trade their starter home for something roomier.
In the summer of 2020, homebuilders began eagerly pulling building permits again and existing homes were selling within days of being listed – often for substantially more than the asking price.
As the pandemic entered its second year, many employers made work-from-home permanent, leaving workers free to relocate from expensive markets and buy homes in smaller markets with cash.
Suddenly places such as Tucson; Casper, Wyo.; Rapid City, S.D.; and Missoula, Mont., were greeting new residents and watching housing prices rise and rise.
Investors got in on the action, snapping up homes and flipping them into rentals for younger, remote workers wary of committing to a 30-year mortgage.
Housing analysts called it all crazy and declared it unsustainable.
But the sizzling hot market continued into 2022, when inflation and rising gasoline prices started to take a toll.
The federal government once again intervened by raising mortgage rates to try and cool things down.
Mortgage rates went from around 3 percent at the beginning of the year to a current average of about 5.5 percent on a 30-year loan.
That pushed up monthly payments for traditional buyers who were already paying more to fill up the gas tank and buy groceries.
This summer, homebuilders have faced a surge of cancellations of homes under construction by people who had placed down payments on new homes and then backed out as interest rates rose. Builders have paused on new-home starts while they try to find new buyers for the homes already under construction.
“This places many builders in a ‘wait and see’ mode,” said Jim Daniel, a housing analyst in Arizona.
In the coming months, the ability to sell those homes already under construction will determine if homebuilder confidence returns.
If not, consumers will continue to struggle to find a home within reach.
Must pay above asking price
Some buyers see no choice but to spend more than they intended to buy a house.
After living in western Montana’s Bitterroot Valley for years, Ann Damrow and her husband decided to move to Spring Creek, Nevada, where their son and his family live.
When the couple found a home they liked, they were advised to act quickly and offer more than the asking price.
“I was going to just offer a certain amount, which I thought was fine, and my husband said that will never do it,” Damrow said. “So he took the phone, and we offered them ‘x’ amount over, which I thought was really high.”
That offer got them the house – which they had never seen in person.
Their home in Montana had two offers the day after being listed, both for more than the asking price.
“They didn’t even ask for an appraisal; they didn’t ask for anything, They just wanted to throw cash at us,” Damrow said. “It was amazing.”
Some buyers are still trying, but not finding much success.
Tammy Day’s husband used to be a truck driver, so the two have traveled across the country. They decided to move west after discovering the dry climate was easier on Day’s health.
After some shopping around, they fell in love with Casper.
“The people that we met were very friendly,” Day said. “We didn’t meet a single person that we would classify as a stranger.”
But the couple is in the unenviable middle-class position of making too much for income-restricted housing in Casper but not enough for market-rate.
Tina Cubbon moved to Flagstaff in 2016 with her son, who is now 18.
They had been driving up from Phoenix every weekend so he could compete on the USASA snowboard team and decided to move there.
After the condo they rented for the first year was put up for sale, Cubbon found their current apartment.
She has wanted to buy a home for a while, but “housing prices started going up but not like they did last year. This last year was crazy.”
Cubbon switched careers during the pandemic so she needs to stay in her job for two years before she can qualify for a loan. Two years will be up in March, but she expects a longer wait for Flagstaff’s housing market to cool down.
“The average home price in Flagstaff for a two-bedroom home is $600,000,” she said. “The FHA loan limits in Flagstaff are $441,600 – the last time I checked – which means I’d have to come up with a down payment of around $100,000 to $160,000 in order to qualify for a home.
“The homes that are around the $400,000 price range are few and far between,” she added. “Home prices in the $300,000 price range — they do not exist.”
‘It just got so competitive’
San Diego resident Nicole Hernandez spent seven months searching for a house for herself, her husband and her 13-year-old son.
The owner of the house they had been renting decided to sell because the market was so hot.
They were hoping this would be their chance to buy their own home.
“It just got so competitive,” Hernandez said. “People were buying in cash, and people were outbidding other bidders just to be able to get the home. If you didn’t go and look at the house when your Realtor says, ‘We’ve got an appointment’ – say you’ve got work or something – that house was gone within that weekend.
Freddie Mac: 30-year rate rose to 6.02% from 5.89% last week – it’s more than doubled since a year ago. Rising interest rates continue to sideline homebuyers.
WASHINGTON (AP) – Average long-term U.S. mortgage rates climbed over 6% this week for the first time since the housing crash of 2008, threatening to sideline even more homebuyers from a rapidly cooling housing market.
Mortgage buyer Freddie Mac reported Thursday that the 30-year rate rose to 6.02% from 5.89% last week. The long-term average rate has more than doubled since a year ago and is the highest it’s been since November of 2008, just after the housing market collapse triggered the Great Recession. One year ago, the rate stood at 2.86%.
Rising interest rates – in part a result of the Federal Reserve’s aggressive push to tamp down inflation – have cooled off a housing market that has been hot for years. Many potential home buyers are getting pushed out of the market as the higher rates have added hundreds of dollars to monthly mortgage payments. Sales of existing homes in the U.S. have fallen for six straight months, according to the National Association of Realtors.
The average rate on 15-year, fixed-rate mortgages, popular among those looking to refinance their homes, rose to 5.21% from 5.16% last week. Last year at this time the rate was 2.19%.
Mortgage rates don’t necessarily mirror the Fed’s rate increases but tend to track the yield on the 10-year Treasury note. That’s influenced by a variety of factors, including investors’ expectations for future inflation and global demand for U.S. Treasurys.
Recently, faster inflation and strong U.S. economic growth have sent the 10-year Treasury rate up sharply, to 3.45%.
The Fed has raised its benchmark short-term interest rate four times this year, and Chairman Jerome Powell has said that the central bank will likely need to keep interest rates high enough to slow the economy “for some time” in order to tame the worst inflation in 40 years.
More inflation data this week suggests that while gas prices have retreated significantly since early in the summer, prices for most other necessities have actually gone up, panicking investors who fear a possible recession if the Fed keeps boosting rates.
Most economists forecast that the Fed will jack up its primary lending rate another three-quarters of a point when the central bank's leaders meet next week. Some fear the Fed could raise the rate by a full point, following consecutive jumbo increases of three quarters of a point at its last two meetings.
The government reported that U.S. economy shrank at a 0.6% annual rate from April through June, a second straight quarter of economic contraction, which meets one informal sign of a recession. Most economists, though, have said they doubt that the economy is in or on the verge of a recession, given that the U.S. job market remains robust.
Applications for jobless aid fell again last week and remain at their lowest level since May, despite the Fed’s moves to tame inflation, which has a tendency to cool the job market as well.
Copyright 2022 The Associated Press, Matt Ott, AP business writer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.
By Blake F. Deal III, Esq. for Florida Realtor magazine
Florida’s homestead laws are one of the many attractive features of living in the Sunshine State. Here's what you need to know about how they work.
Florida’s homestead laws are one of the many attractive features of living in the Sunshine State. Realtors® should have a basic understanding of the benefits of the homestead laws, especially since some recent developments have made it more important than ever. Knowing these laws allows you to help sellers avoid costly mistakes. Here are the high points:
1. The Save Our Homes Act
Due to this long-standing law, homestead properties in Florida will not see an increase of more than 3% a year or CPI (whichever is less) in their taxable value no matter how much the market value of the home increases. This is why someone who has lived in a home in Florida for a long time will have a tax bill far lower than the market value of their home would otherwise dictate.
The difference in the assessed value of a home (what we base the taxes on) and the market value of a home (what it would sell for in a free and open market) is what we call portability. Portability went into effect on Jan. 1, 2008, and has become important given the decade-long runup in Florida property values. Before portability came along, some homeowners wouldn’t consider a move because they didn’t want to lose their low tax bills. With portability, they can take the savings with them, up to a maximum of $500,000. Given that Florida has around a 2% average tax rate, that means a homeowner with $500,000 in portability will see a tax bill about $10,000 a year lower than it would be without it.
3. Homestead Exemptions
Most Realtors® know about the $50,000 standard homestead exemption, but did you know that there are around two dozen other exemptions? There are exemptions for deployed servicepersons, disabled veterans, people who built granny flats onto their homes, homeowners who suffered damage from a storm or other catastrophe, senior citizens … the list goes on. Some of these exemptions can be valuable. There is a “Super Senior Long Term Exemption” that completely exempts some senior citizens who have lived in their homes for more than 25 years from having to pay any property taxes at all. Check with your county property appraisal office for a list of these exemptions.
Timing and Other Information
Most of the complication involves portability. Portability requires a separate filing that many homeowners don’t realize they have to complete. Also, there are time limits for moving portability. Thanks to the passage of Amendment 5 on the November 2020 Florida ballot, you now have until the end of the second year following the year in which you sell your homestead to establish your next Florida homestead. If you sold in December 2020, you have until Dec. 31, 2022, to buy and move into your next Florida homestead.
Have you ever noticed that oftentimes the market value of a home on the tax rolls is far below what it will likely sell for? It’s OK for the tax roll market value of a home to be up to 15% below the actual value, but any more than that will cause the seller’s portability to be lower than it should be. This has to be recognized and addressed before the home is sold or the loss of portability will be permanent. There’s no need to hold up the closing—just having the buyers and sellers sign a simple form, available at floridarevenue.com, can allow the issue to be fixed post-closing.
Exemptions are also a big source of lost property tax savings. Quite often, homeowners don’t realize that they’re eligible for an exemption and don’t file for it.
It’s vital to understand how your knowledge of homestead and portability can help when working with a new seller. Here are suggestions:
When you start working with a seller, you should make sure that their market value on the tax rolls is not substantially less than 85% of a reasonable estimated sales price. This can usually be easily fixed and doing so will not raise the tax bill for the year of sale, or for subsequent years for the new buyer.
You should also make sure that the seller filed for portability when they filed for homestead on the property about to be sold. If they forgot, and you recognize this before closing, many times the unclaimed portability can be claimed and passed forward to the next home, resulting in valuable tax savings.
As a real estate professional, the more knowledgeable you are about the advantages of homeownership, the better you can help your customers.
Blake F. Deal III, Esq., is a Jacksonville-based real estate attorney. He served as an instructor for the Contracts and Listing Agreement classes for the Northeast Florida Association of Realtors for over 15 years and concentrates his practice in the areas of residential and commercial real estate and property tax law.
How to Check Portability and Homestead
Florida Homestead Check, LLC offers a Free Portability Checker at portabilitypros.com. They also offer a Realtor Assistance Center where Realtors may ask free homestead-related questions.
The Florida Department of Revenue also has information at floridarevenue.com. Or, check your local property appraiser’s website.
County governments in Florida should see record jumps in the taxes they’ll collect after the hot–market months of 2021 – those property sales will set 2022 value.
FORT MYERS, Fla. – This year turns out to be extraordinary for tax collectors in the Sunshine State because county governments are going to see record jumps in the booty – or bounty, if you will – they’re able to collect after the hot–market months of 2021.
“We are looking at sales occurring in 2021 to set 2022 value,” explains Dorothy Jacks, Palm Beach County’s property appraiser, who points to jumps of 15% in taxable values in the county. That’s a sizeable windfall for county commissioners who determine how much money they’ll need or want in a new budget, and then set millage rates, taxing property owners, to reach it.
“So even though it’s August now,” Ms. Jacks said as that month came to an end, “TRIM notices are based on numbers that occurred in 2021. We have the first half of 2022 to prepare these values, and in August they disclose them to all homeowners.”
It’s not just Palm Beach County, either.
One of the biggest jumps in property values happened in Collier County, where the Just value – that’s the value of a property before any assessments are figured or extra fees are paid if it’s bought and sold – jumped almost 42%, from $131 billion or so in 2021 to $185.6 billion now.
Property Appraiser Abe Skinner, born and raised one county to the north, has served at the Collier County office for 60 years, with a four–year break to run his own business when Haydon Burns and Claude Roy Kirk Jr. were governors in the 1960s, and he was still young.
Mr. Skinner may know everything there is to know about appraising property on the southern Gulf Coast, and until now he may well have thought he’d seen it all.
But maybe not.
“This year was very different – everybody and his brother wants to come to Florida, and they’re paying the price,” he said. “In certain neighborhoods here where you wouldn’t think properties might sell for more than $200,000 or $300,000, they might have sold for $700,000 or $800,000. It shows what’s going on in Collier. The first three quarters of the past year we were appraising many properties that were gradually climbing. And in the fourth quarter it just went crazy.”
After all exemptions have been applied, so far, the taxable value of property in Collier is coming in at about $122.3 billion.
In Lee and Charlotte Counties, too, the word “windfall” for local governments doesn’t seem out of place.
Property countywide is up between 15% and 20% in taxable value, and much more than that in the Just value – in the mid– to upper 30 percentage points – for the first time in more than 15 years, said Paul Polk, Charlotte County’s property appraiser.
“Our Just value, the market value before any exemptions or caps are applied, puts us at $41 billion – that’s an increase of 37%. It was $29.6 billion in 2021,” he noted.
Mr. Polk describes an annual process that takes place in every county.
“In July, the budget director meets before the board, which decides whether they’re going to raise the budget or keep it the same. That means they can lower the millage rate, keep it the same, or raise it.”
With the big jump in taxable value, commissioners could actually reduce tax rates on individual properties and hit the same budget numbers as last year.
“So we had a 17% increase or $3.5 billion in taxable value they were not looking at last year,” Mr. Polk said. “In the initial hearing, they said they would keep the millage rate the same. So they’re going to get more money. They have that option.”
But those figures are not yet set in stone, in any county. Public hearings to determine finally what millage rates to establish, mentioned in TRIM notices, are taking place this week.
Meanwhile, says Ms. Jacks, “each taxing authority sets its own millage rate – and there are 12 or 15 taxing authorities, each with taxing power. They’re looking at, ‘We need X–dollars to run this city or county, or this organization (school boards, mosquito control districts and the like), and they set a rate based on how much value they have to work with.”
How it’s computed
Grim, TRIM and not so slim is how many people these days may view the mail arriving from their county governments in the season we can never seem to escape: Property tax season.
Even hurricanes aren’t annual seasonal occurrences in Florida, which brings to mind an observation first made by Benjamin Franklin in a letter to a French scientist: “The only two certainties in life are Death and Taxes,” he wrote in 1789.
If you’re still breathing this year and you own residential, commercial or agricultural property in any of Florida’s 67 counties, the bill is coming due. August TRIM notices have arrived for property owners: TRIM, an acronym for Truth in Millage.
The millage rate is how much money per thousand dollars of property value elected leaders are going to tax property owners. But those with exemptions – residential homestead exemptions of $25,000 and a few others – won’t pay on the full value of their properties.
What any property owner should know: The tax bill you receive now is for last year’s assessments. Expect to pay more if your property jumped in Assessed value in 2021, as many properties did in a market not just hot, but boiling, for the late months of last year.
And expect to pay a lot more than those with multiyear homestead exemptions if you bought a different home or built a new home anytime after Jan. 1, 2021.
On the other hand, if you remained in a home with a homestead exemption from a previous year (a thing created for all Floridians by former Lee County Property Appraiser Ken Wilkinson), you’re in luck.
Homestead exemptions also restrict jumps in property tax to no more than 3% a year. Other property owners, those without homestead exemptions, are capped at a 10% per year increase.
So here’s a hypothetical: If you bought a home and property for $300,000 in 2011 that you still own, receiving the homestead exemption on it that year and paying $750 in property tax in 2012, your taxes could increase at no more than 3% each year.
The most you could pay this year, therefore – even if your home increased in value from $300,000 to $1 million or more – would be just over $1,000.
But if you sold your home for $1 million in 2021, the new owner could establish a homestead exemption, but he or she would be paying a tax on the new Assessed value.
The various values
It’s not too complicated, but it is both detailed and structured. First, the market value of your home, vacant lot or other property – what you might actually sell it for – is never a direct part of property taxing.
But the so–called market value determined in part by the sales prices of similar or nearby properties, also helps determine what Just value, Assessed value and Taxable values property appraisers will put on your property, explains Matt Caldwell, Lee County’s property appraiser.
“Just value is like the market value you see on a private house, but there’s a difference: the Just value has to reflect pure cash. The commissions you pay for the sale have to be deducted, so your Just value should be lower than your market value.”
But your property tax isn’t based on that.
“From the Just value you step down to Assessed value,” Mr. Caldwell explained, “And that includes your caps: the 3% for the homestead or 10% for other.” There are a host of additional exemptions, too – for widows, for example.
And after assessing all of that, property appraisers determine the taxable value actually reflected in your slim, grim, TRIM notice.
“So in Lee County, the Just value went up 35%, the Assessed value is up 18%, and the Taxable value went up more than 15%,” Mr. Caldwell said.
In Lee, “of the 550,000 properties, about half are homestead properties, so they’re capped at 3%. The only people who will pay more than 10% are people who bought brand new in 2021 or did brand new construction. They’re starting at the top of the benefit ladder.”
In Charlotte County, Mr. Polk said, “we have over 200,000 properties we have to value each year, and we’re required to evaluate starting Jan. 1 each year.
“We’re going into neighborhoods, looking at sales. We have vacant lots that were selling in January 2021, for $10,000. By the end of the year they were selling for $25,000. Markets more than doubled. There’s been no jump like than in 15 years. And 17% is big because we have the homestead cap of 3%, and 65,000 or 70,000 homes with homestead only went up 3%.”
With commercial rather than residential property, however, “we’re using more of an income approach,” Ms. Jacks explained. “So think about an office tower or strip center – we’re looking at data of rents in a property doing that, along with other things, such as the actual cost of doing business.
“One of the things about our work, by its nature because we’re doing it in mass, is that it’s done with a broad brush. We’re not looking at individual properties one by one.”
What to do with all the money
In the eyes of county commissioners determining county budgets, the big 2021 boost is not likely to mean spending like there’s no tomorrow, especially since taxpayers tend to pay attention and take it personally if they feel they’ve been stung by unnecessary spending.
But it may mean some catch–up spending, both in infrastructure and on human capital.
“My view is we have to spend on infrastructure, not just road ways but sewer and water, and we have to support our people,” explained Kevin Ruane, a Lee County commissioner and former mayor of Sanibel Island, who has spent a professional career in finance.
“The county has more than 800,000 residents, and there are 18 additional budget requests we have to consider for our budget.
“The biggest, 42% of our budget, goes to the Sheriff’s Office. The biggest pieces are for capital improvements, but the Sheriff’s budget alone cost us $25 million for personnel.”
And personnel are key.
“The pendulum has to swing both ways,” Mr. Ruane said. “During the recession there were seven years of no raises. So this year the county did an adjustment: at the low end, raises are 10%. At the upper end, it’s 3%, for a 7.8% increase overall in salaries.
“If we want to be the county of choice when there’s not enough labor, how do you do that? You take care of people. So we were proactive.”
In Collier County, eight–year commissioner Penny Taylor echoed some of Commissioner Ruane’s thoughts.
“What are we going to do with the money? Well, we anticipated this a little, budgeting for around a 6% increase, and it went up to almost 16% – and we’re already spending it,” she said.
“The sheriff came to us at our budget meeting and said in order to keep the deputies here and on the job, he’d need $4 million to implement a new pay plan.”
The commissioners gave it to him in their budget planning. There’s a reason for that, Ms. Taylor said: “The private sector is paying more than the government sector and we’re losing folks.
“So the money will go for public safety, for storm water operations and maintenance, and for transportation.”
Before the current high times – which appear to be settling down as markets become more steady – Florida residents in Collier County saw property values increase by 26% in 2006, as the markets boomed. In 2007, Ms. Taylor recalled, that increase dropped to 16%, and then 2008 arrived.
The world seemed to turn upside down for many, and so did property values, which plunged.
“We didn’t climb out of the recession until 2013,” Ms. Taylor recalled.
While that may be the big picture, when TRIM notices arrive in mailboxes as they have in recent days, they aren’t absolutes. They can be challenged in any county, Mr. Caldwell explained.
“If a property owner gets a TRIM notice and has a question, they can go on line, chat or come into the office. I have 82 people, but the 20 or 25 who deal with these issues have heard it and seen it all, and they’re extremely helpful, on the phone or in person.”
Homeowners have 25 days after receiving a TRIM notice to file a petition to have it changed.
“If you feel strongly we got your number wrong, reach out and let’s talk,” Mr. Caldwell said. “Is there something we missed? Maybe we said you have three bathrooms but you only have two. If it’s issues of opinion, talk to us. We resolve a lot of questions that way.”
Last year, he noted, the county had 550,000 real estate parcels and after the August TRIM notices went out, only about 2,000 petitions for a change in values.
And if talking won’t work and an owner doesn’t like a resolution, “we can go to court. We had a dozen go to court last year.”
Meanwhile, come Jan. 1, property appraisers will have eight months again to tally the data from an astoundingly vigorous 2022 before sending out next year’s TRIM notices.
Although the market in the first six months was still a boil, it now seems now to be calming a bit.
What will those notices a year from now look like?
“We still have five months to go, and properties are staying on the market for a little longer now, and that tells us the market is starting to simmer, to relax a bit, to go back to a more normal market,” Ms. Jacks said.
“That may mean that although we will see increasing values next year, they may not be at this level.”
Black Knight: Home prices fell 0.77% between June and July – the largest monthly decline since Jan. 2011 and the first monthly drop of any size in 32 months.
NEW YORK – According to a recent Black Knight report, house prices fell 0.77% between June and July, marking the largest monthly decline since January 2011 and the first monthly drop of any size in 32 months.
As mortgage rates continue to rise and weigh on home values, some homeowners have lost wealth. Mortgage rates are now double what they were at the start of this year, and home sales have slowed.
However, Ben Graboske, president of Black Knight Data & Analytics, says, “Annual home price appreciation still came in at over 14%, but in a market characterized by as much volatility and rapid change as today’s, such backward-looking metrics can be misleading as they can mask more current, pressing realities.”
Roughly 85% of major markets have seen prices come off peaks through July, with one-third coming down more than 1% and about 1 in 10 falling by 4% or more, according to the report. As a result, after gaining trillions of dollars in home equity collectively during the first two years of the COVID-19 pandemic, some homeowners are now losing equity.
Declining home values in June and July brought the total amount of tappable equity down 5%, and Black Knight analysts expect the third quarter will show a larger decline.
The report also indicates that about 275,000 borrowers who would fall underwater if their homes were to lose 5% of their current value, but even with a universal 15% decline in prices, negative equity rates would still be nowhere near the levels seen during the financial crisis.
As insurance providers in Florida leave the market and some companies fold, residents themselves are footing the bill from companies pulling out of the state.
TAMPA, Fla. – Florida homeowners will see their bills go up as the state’s property insurance crisis continues. Multiple insurance providers in the state have left the market, even after a special legislative session was held to address business and homeowner needs. Now, residents themselves are footing the bill from companies pulling out of Florida.
In August, another insurance company was added to the list of providers that became insolvent, the 10th since April 2021. The Florida Insurance Guaranty Association is the state-created non-profit, which “establishes and maintains a service-oriented operation for processing covered claims of insolvent members.” FIGA was established by the Legislature in 1970.
For the second time in 2022, FIGA has issued a surcharge to homeowners on their insurance policy premiums, in order to cover claims from companies that have entered receivership. It’s the third time this has happened since 2020, according to FIGA. So far in 2022, FIGA assessments have approved surcharges to go up a collective 2%, with 1.3% added in March and another 0.7% added in August.
The 0.7% increase was approved on Aug. 19 after the Florida Office of Insurance Regulation ordered a levy.
Citing Florida statutes, FIGA said “members will be able to recoup the .70% assessment from their policyholders over the Assessment Year starting January 1, 2023, through December 31, 2023.”
According to the request for new levy by OIR, “the liquidation of Southern Fidelity Insurance company resulted in FIGA receiving in excess of 5,000 claims with unpaid losses and return premium in excess of $178 million.”
FIGA reported to OIR that their forecasted cash flow would be “materially impacted” by the insolvency of Southern Fidelity. Thus, the non-profit said they need the collection of surcharges to continue into 2023. The letter from FIGA to OIR said the surcharge collections will “result in approximately $168 million in assessments for FIGA policies” through Dec. 31, 2023.
The insolvencies across Florida’s property insurance companies comes amid a potential downgrade to company ratings for 17 providers, which was only delayed, not withdrawn, and the possibility of homeowners being on the hook if their companies are downgraded or fully fail.
While Florida has instituted a temporary fix for the Demotech ratings downgrade, another insurance company is weighing an exit from the state as well. Demotech’s president Joe Petrelli told WFLA.com that the downgrades were delayed “until further notice,” after pressure from Florida’s government. However, The state insurance commissioner, David Altmaier, has also put nearly 30 insurers on a watch list, according to previous reporting by WFLA.
At the end of July, OIR announced a temporary reinsurance arrangement with Citizens Property Insurance Corporation while the ratings downgrade was weighed. The solution, according to OIR, would “allow insurers to meet an exception offered by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation,” letting Floridians keep their homeowners coverage during hurricane season.
“OIR’s greatest priority is ensuring consumers have access to insurance, especially during hurricane season; and because of the uncertainty with the status of Demotech’s ratings, we've been forced to take extraordinary steps to protect millions of consumers,” Altmaier said in July.
Altmaier said the quick fix was an “innovative arrangement” that would let consumers keep coverage while allowing insurance agents to avoid moving policies, which would let lenders “have confidence that these insurers continue to meet mortgage qualifications.”
According to American Family Insurance, a national insurance company, property insurance is not technically, legally required for homes that are fully owned and no longer subject to mortgage payments, which are a loan. If a resident owns their home outright, there is no lender requiring payment, and thus, the insurance itself is optional. Many mortgage lenders do require insurance policies.
As of July, more than 30% of homes sold in Florida were paid for in cash, meaning there is no mortgage policy attached to them.
Bankrate, a consumer financial service company, says many insurance policies use a type of coverage known as replacement cost to calculate the monthly and yearly rates for coverage plans used by homeowners. However, the replacement cost refers to the cost to replace or rebuild a home that becomes damaged.
During the ongoing inflation issues facing the national and global economy, the prices of materials, a skilled labor shortage, and other supply chain problems have increased the costs for construction and repair. This has resulted in policy premiums increasing.
The median sell price for Florida homes was $412,303, according to Florida Realtors. This means that if you have a mortgage, your replacement cost, depending on the type of insurance plan you have, would cover about what you paid to purchase the home.
To handle the failing insurance companies, the assessment levies from FIGA have added the surcharges to fund payments to insurance claims filed by those losing the policies from the folded insurers.
While the total assessment for levies was increased a collective 2%, in 2020, the Florida Legislature allowed a potential for bigger increases due to emergency needs. “Emergency Assessments were increased from 2% to 4% annually during the 2020 legislative session,” according to FIGA. Before 2015, insurance companies paid assessment fees to FIGA, then added a surcharge to each policy until the money spent was recouped.
FIGA said in 2015, the assessment statute was amended by the Legislature to allow FIGA to “obtain funds quickly, but also introduced an option for insurers to remit assessments” when they’re collected over a yearlong policy term. From 2013 to 2020, no assessments were levied, according to information from FIGA.
Since 2020, assessments were levied three times.
But, even with the added levies and subsequent surcharges, FIGA reports that they will only cover up to $300,000 in claims costs. This means that, at least for median prices of homes sold in July, Florida residents won’t be able to get a full replacement cost recouped for themselves if they need to file a claim. Instead, they'll be shorted $112,000 on average, based on current market data.
The Florida Chief Financial Officer's office reports there are currently 15 companies in liquidation and receivership, with 11 of the companies property insurers.
By current policy choices, the costs of failing property insurance companies are now passed on to Florida residents, so a state-run insurance nonprofit can recoup the costs of paying out claims for the companies that have folded.
“A public workshop will be held on Sept. 21, 2022, by FIGA to provide members with information on how to report and remit surcharges collected for the 2022 Assessments,” according to the company.