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Property insurance, which is more pricey and challenging than ever for foreign and domestic buyers as the most vital expenditure of possessing a property in Florida, is on the brink of worsening with industry forecasts indicating that property insurance premiums will surge this year. Projected to hike by 40 percent. bloomberg
Gus Carlson serves as a US-based columnist for The Globe and Mail.
Canadians who own or desire to own real estate in Florida are confronted with a multitude of financial elements that have rendered it significantly more expensive to acquire and sustain a dwelling in the sunshine state.
The latest predicament is property insurance, which is more costly and challenging than ever for foreign and domestic buyers, occasionally even surpassing the mortgage as the most substantial outlay of owning real estate in Florida. Furthermore, it is about to exacerbate – property insurance premiums are predicted to increase by 40 percent this year, according to industry projections.
Coupled with elevated dwelling and condominium prices, increased living costs and an exceptionally feeble Canadian dollar, Florida, once a relatively economical and convenient destination for numerous Canadian buyers, is increasingly slipping out of reach and prompting inquiry. IS: What is the genuine value of fleeing the northern winter?
Regardless of whether you envision Florida as a sunny paradise or a dismal realm, the transformation is substantial when considering the strong investment standing of Canadians south of the border. Canadians are by a considerable margin the most significant foreign purchasers of real estate in the Sunshine State – US$2.1 billion the previous year – and stand second only to the Chinese as the largest international purchasers of residential property in the United States.
The Florida property insurance sector has been grappling with difficulties for a while due to burgeoning population growth, greater concentration of individuals in high-risk coastal areas, and escalating fraud and litigation expenses. Over the last three years, the state has witnessed more than 30 insurers withdraw some form of home coverage. Since 2017, 11 property and casualty insurers have exited Florida, and five have undergone liquidation.
Numerous remaining insurers are implementing aggressive strategies to not renew home policies, tightening eligibility requisites for policies, and elevating premiums. State legislators have been laboring assiduously to stabilize the market, but thus far economic and natural forces have nullified their endeavors.
This is unfolding amid escalating dwelling prices, with multitudes migrating south from high-tax, low-temperature states. This trend accelerated during the COVID-19 pandemic, when remote work enabled myriad individuals to conduct business from any location they desired and millions elected to permanently reside in locales like Florida, where no state income tax exists and the tropical lifestyle is alluring.
Albeit rising mortgage rates have subdued prices in certain areas, the influx is stimulating housing demand, augmenting the already scarce inventory of new residences and resales. Last year, Florida outpaced Texas to become the fastest-growing state in the union with a populace of 22 million, a figure anticipated to reach 30 million within the next decade.
Numerous newcomers to Florida elect to dwell in coastal regions, recognized as elevated insurance hazards. This trend predates the amplification of the climate change discourse, yet there has been a substantial surge in people opting to reside in areas at heightened peril of damage from Florida’s major natural occurrences – hurricanes and tropical storms, resulting in noteworthy financial implications.
Recent tempests, inclusive of Hurricane Ian, which inflicted over US$100 billion in damages in Florida in September, 2022, have thrust this issue into prominence. Not even extensive adoption of stringent building codes instituted subsequent to Hurricane Andrew, a Category 5 hurricane that struck Miami in August, 1992, has managed to rein in the predicament.
What astonishes numerous new property owners in Florida is that there exist insurance quandaries specific to tropical regions, such as distinct coverage for wind, flood, and, in some zones, property enhancement requirements stipulated by the Federal Emergency Management Agency (FEMA) and local codes that can inflate the expense of constructing or renovating a dwelling by hundreds to thousands of dollars.
Nevertheless, these predicaments are not solely attributable to storms. Florida has been beleaguered by insurance deceit and uncontrollable litigation costs. Despite accounting for merely nine percent of all U.S. home insurance claims, the state is responsible for 79 percent of home insurance lawsuits, many of which are fraudulent. The amalgamation of these factors has resulted in underwriting expenses surpassing US$1 billion for Florida insurers in two consecutive years.
Mortgage rates, irrespective of the side of the border you call home, have surged dramatically, with average 30-year rates in the US now hovering around eight percent. The depreciation of the Canadian dollar, languishing below 75 US cents, poses an additional dilemma for northern buyers.
Whether this confluence of issues will diminish the ardor of Canadian buyers for Florida real estate remains to be discerned. One certainty is that savoring a Mai Tai along the shore in January or indulging in a round of golf on a balmy February afternoon will, in one manner or another, be more exorbitant.