The National Flood Insurance Program (NFIP) announced the details of its plan to revise the money-losing homeowners insurance program by raising rates charges to homeowners. For a typical Downe Township resident with flood insurance, this means current policy premiums will rise 25% per year, and continue this rate of increase year after year until rates are at least triple the amount of the current premium. For new home buyers the situation is worse. Flood insurance will immediately be increased to the higher actuarial cost, meaning that the cost of taking out a mortgage will be significantly higher. In rough terms, the cost of flood insurance for an elevated home will be about 6 percent of the amount borrowed through a bank. Low-lying properties and houses that have been repeatedly flooded will not qualify for coverage.
The national price increases for flood insurance are not the result of hurricane Sandy. NFIP reform legislation was actually passed last year as Title II of the Transportation Bill (H.R. 4348) and was signed into law (PL 112-141) on July 6, 2012. While the program is legislated to make coverage available to homeowners, it is not required to make the premiums affordable. This article at EDEN gives examples of how the premium cost will increase. The rate increase takes effect just prior to the beginning of the 2013 storm season.
Additionally, local homeowners should expect to see a significant increase in the price of their homeowners insurance.
The flood insurance change will certainly create a drag on real estate values. The only questions are how much and for how long. Some observers are concerned that homeowners on a fixed income will be forced out of their homes, placing even more homes on this depressed real estate market. On the other hand, the opportunity for cash buyers and tax lien purchasers will be greater than ever to purchase properties from distressed owners at a small fraction of pre-2006 prices.