America’s housing market is teetering on the edge of a crisis—a situation fueled by climate change, soaring insurance premiums, underinsurance, and systemic failures in addressing these growing risks. A Ryan Kingsley article in National Mortgage Professional, aptly titled Homeownership Is Underwater, Up in Flames, or in the Wind, highlights the mounting challenges homeowners face in maintaining their financial footing amidst escalating natural disasters. The question now is whether we’ve reached a breaking point—and if those in positions of power are deliberately delaying the inevitable reckoning or refusing to address needed answers to help mitigate this looming financial disaster.
At the heart of the issue lies the insurance market, which is buckling under the weight of ever-increasing claims from disasters like hurricanes, wildfires, and floods, combines with rising construction costs. This underpins a broader economic dilemma: homeowners unable to afford adequate coverage may soon find themselves unable to afford their homes entirely. As billionaire entrepreneur Mark Cuban ominously observed in a recent interview in an article ‘Florida, In Particular, Is Going To Have Huge Problems’ – Mark Cuban Says #1 Housing Affordability Issue Is Insurance, Not Interest Rates, “Florida in particular is going to have huge problems” due to uninsurable properties becoming the norm. The implications of this extend far beyond individual homeowners to lenders, insurers, and the broader financial system. Is anyone paying attention?
A Crisis in the Making
The scale of this problem is staggering. Insurance costs, combined with rising property taxes, are outpacing mortgage interest and principal payments in many areas. A Wall Street Journal report published this week, Insurance and Taxes Now Cost More Than Mortgages for Many Homeowners, noted that for many homeowners, the combined expense of insurance and taxes now exceeds their mortgage—a grim statistic that underscores the financial pressures at play. Meanwhile, a journalist, Keith Griffin, who frequently writes on mortgage issues, wrote an article published in the New York Post, Rising Cost of Insurance and Property Tax is The Top Risk for Mortgage Delinquencies: Survey. Griffin highlighted survey data indicating that rising costs in these areas are the top risk for mortgage delinquencies. In plain terms, many Americans are at risk of losing their homes not because they can’t pay their mortgage but because they can’t afford the peripheral costs of homeownership along with the mortgage payments.
These financial pressures are being exacerbated by climate-driven disasters. As natural calamities grow more frequent and severe, insurance companies are pulling back from high-risk areas or raising premiums to unsustainable levels. In a number of states, like Florida and California, insurers are outright refusing to write new policies for certain regions, citing excessive risk. This creates a vicious cycle where properties lose value, homeowners default, and local economies suffer. For a country that relies heavily on homeownership as a cornerstone of wealth-building, this trend is nothing short of catastrophic.
I have raised this issue several times. Earlier this year, I posted Fannie Mae and Freddie Mac Guidelines to Insure at Full Replacement Cost Finally Hit the Insurance Media, stating:
There is no free lunch with issues of property ownership. The obvious long-term answer is building and maintaining structures so they can better withstand expected regional natural disasters so that the overall long-term cost of building ownership is reduced.
Climate Risks and the Mortgage Market
One of the most striking aspects of this unfolding crisis is how ill-prepared the mortgage market is to handle climate risks. As the National Mortgage Professional article points out, lenders are not adequately factoring in the long-term costs of climate-related damages when issuing mortgages. Kingley’s article suggests that this failure of oversight could lead to a financial crisis reminiscent of the 2008 housing crash. Homeowners, stretched thin by rising costs, are increasingly vulnerable to default—a risk that could ripple through the economy with devastating consequences.
Adding fuel to the fire is the lack of regulatory foresight. The Senate Budget Committee has begun investigating state regulators’ responses to the crisis, particularly in Florida, but progress has been slow. The committee’s efforts are being stymied by resistance from industry stakeholders, many of whom appear more interested in protecting short-term profits than in addressing long-term vulnerabilities. This reluctance to act—whether out of self-interest or bureaucratic inertia—is deeply troubling.
Mark Cuban’s Stark Warning
Mark Cuban’s comments offer a sobering perspective on the stakes involved. Speaking to Yahoo Finance, he remarked that Florida’s property market faces “huge problems” as insurers pull out, leaving homeowners unprotected and property values in jeopardy. Cuban’s remarks underline a broader truth: the uninsurability of homes in disaster-prone areas is not just a local problem but a national one. As more properties become uninsurable, their market value plummets, creating a domino effect that could destabilize entire communities.
Florida is no different than the rest of the country, where insurers are raising property insurance premiums. Property insurance rates are increasing across many parts of the United States, not just in Florida, although Florida is experiencing some of the most severe rate hikes. States like Maine, Michigan, Utah, Montana, South Carolina, North Carolina, Illinois, Connecticut, and Nevada are all expected to see rate increases of 9-19% in 2024.
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The article listed numerous rate increases, with Maine’s projected rate increase at 19%, Michigan’s at 14% and Utah’s at 13%. States prone to hurricanes (Florida, Louisiana, Texas), wildfires (California, Colorado), and tornadoes (Texas, Nebraska, Kansas) are seeing the highest insurance rate hikes.
There are numerous reasons for this Nationwide increase. First, inflation has significantly increased the costs of construction materials and labor required to repair or rebuild homes after losses. From 2019-2022, home replacement costs spiked 55% due to supply chain issues, higher material costs, and labor shortages. When it costs insurers more to pay claims due to these inflated expenses, they raise premiums to compensate.
Second, property claims have increased in frequency and severity in recent years. For example, industrywide commercial property claims rose 30% year-over-year in the first half of 2023. Insurers are paying out more in claims than they are collecting in premiums, with some facing insolvency as a result, especially in high-risk states like Florida. Some suggest that climate change is the culprit causing a greater frequency of losses.
Cuban’s critique extends to policymakers and regulators, who he suggests have been slow to recognize the severity of the issue. “Nobody wants to take responsibility,” he noted, implying that many in power are content to kick the can down the road rather than confront the hard truths. This abdication of responsibility is particularly glaring given the growing body of evidence pointing to an impending crisis. One can only wonder how much worse things must get before meaningful action. Maybe politicians and regulators will listen to a celebrity entrepreneur.
Why Didn’t We Act Sooner? And The Path Forward
The inaction of those in power raises uncomfortable questions about accountability and foresight. Climate scientists and even the insurance industry have been warning about the risks of more frequent and severe disasters for decades. The mortgage industries have largely treated these warnings as abstract rather than immediate concerns. Policymakers, too, bear some blame for failing to implement measures that could have mitigated the current crisis. For example, I recently noted that our federal government has not raised the limits of flood insurance for homeowners flood policies since 1994 in Modernizing the National Flood Insurance Program: A Call for Higher Coverage Limits:
In an era of rising sea levels, intensifying and more frequent storms, and escalating construction values, the National Flood Insurance Program (NFIP) stands as a critical bulwark against the financial devastation wrought by flooding. Yet, as we approach the program’s 60th anniversary, it’s become increasingly clear that the NFIP’s coverage limits have failed to keep pace with economic realities, leaving millions of American property owners dangerously underinsured. The recent events from Hurricanes Helene and Milton signal that it’s time to act on the long-called-for reform of the NFIP, which includes a rise of coverage limits to reflect current property values and construction costs, ensuring that the NFIP remains a relevant and effective tool for flood risk management.
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The time has come for Congress to act on the longstanding requests to reform the National Flood Insurance Program. Even the NFIP has called for reform, recognizing the need to modernize its plan of operation. Raising coverage limits is not just about providing better insurance; it’s about creating a more resilient nation in the face of increasing flood risks.
To our lawmakers: I urge you to consider the compelling common-sense case for increasing NFIP coverage limits. This reform would provide better protection for property owners, reduce the burden on taxpayers, and help communities recover more quickly from flood disasters. It does not take a rocket scientist to calculate that coverage limits made 30 years ago are woefully inadequate in current dollars.
The failure to act sooner reflects a broader tendency to prioritize short-term gains over long-term stability. Lenders, politicians and regulators have all benefited from the status quo, even as the underlying risks have grown more acute. This myopic approach has left millions of homeowners and the nation exposed to financial ruin while the systemic risks to the economy have gone largely unaddressed. The result is a ticking time bomb that threatens to upend the American dream of homeownership.
So, what can be done to avert disaster? First and foremost, there needs to be greater federal oversight of mortgage industries as it relates to insurance. The state insurance regulators who desperately want no federal oversight are allowing underinsurance and insurance gaps to exist at an increasing and alarming rate, as noted by United Policyholders and Rutgers Insurance Law Professor Jay Feinman. I raised this in a number of posts, including The Protection Gap in Property Insurance—Why Nobody Should Buy Farmers Smart Plan Insurance:
I recently spoke at the Oklahoma Roofers and Contractors Association Conference. In part, I discussed the issue of insurance gaps of coverage which may allow some insurers to only pay actual cash value rather than full replacement cost to parts of a damaged building. An audience member told me how horrible the Farmers Smart Plan policy was with bizarre and very anti-consumer language regarding ‘marring’ and how little it pays for wind or hail damage compared to other insurance policies.
After reading the Smart Plan policy form, I agree it is horrible. It should be per se negligence for Farmers agents to sell it. The form does not comply with Fannie Mae or Freddie Mac minimum requirements for property insurance on a federally guaranteed mortgage. Regulators should ban the Farmers Smart Plan policy form. It is stupid to allow the Farmers Smart Plan policy and those like it to be sold. The truthful name should be the Farmers Stupid Plan policy.
The problem is that state regulators will not ban these policies, and they are certainly in violation of what is required to be carried as insurance for mortgage contracts. Regulators simply look the other way about the national issues of negotiable mortgages meeting regulations.
The Kingsley article raises the additional issue that the state insurance regulators and national mortgage industry do not include these risks at the point of mortgage risk underwriting and further mandating that climate risks be incorporated into underwriting and lending practices. Federal regulation and oversight is required to some degree because state regulators have failed to establish national insurance products covering flood. Indeed, state regulation of flood and crop insurance was such a disaster that the federal government had to step in, monitor and then provide a coverage mechanism. Those suggesting that there is no need for federal oversight of insurance are in denial about insurance realities or ignorant of insurance history.
At the state level, policymakers must work to stabilize insurance markets by incentivizing companies to remain in disaster-prone areas. States must invest in promoting climate-resilient infrastructure, such as seawalls and wildfire prevention measures, to reduce the overall risk to properties. They must improve upon and enforce building codes.
But this all costs the homeowner more money as well. There is no free lunch in the long term. Politicians and regulators cannot keep kicking this issue of the cost of homeownership down the line forever.
For homeowners, the key is education and preparedness. Many are unaware of their long-term financial risks and costs of home ownership or the options available to mitigate these. Public awareness campaigns, coupled with financial incentives for climate-resilient home improvements, could go a long way toward reducing individual and collective vulnerability. Our tax code incentives should not just be about energy conservation but about home resiliency as well.
The challenges facing America’s housing market are daunting, but they are not insurmountable. What is needed now is bold action and a willingness to confront uncomfortable truths. As Mark Cuban’s comments make clear, the cost of inaction is too high to ignore. Policymakers, regulators, and industry leaders must step up to address the systemic risks posed by climate change, rising insurance costs, and uninsurability. Anything less would be a dereliction of duty—and a betrayal of the millions of Americans who depend on the stability of the housing market to secure their financial futures.
The time for kicking the can down the road has passed. The question now is whether we will rise to the occasion or allow this ticking time bomb to explode on our watch. The stakes couldn’t be higher, and the clock is ticking.
Thought For The Day
“You can’t escape the responsibility of tomorrow by evading it today.”
—Abraham Lincoln
