Will Flood Insurance Reform Effect Real Estate?

If you live in a special flood hazard area, the short answer is YES.  Please read our previous blog article about the drastic changes to flood insurance to get a background.

As flood insurance rates rise almost 10-fold, many river communities such as Milton, Bloomsburg, Hughesville, Muncy, Jersey Shore and even Harrisburg are going to feel the effects of these new flood insurance reform.

By law, anyone who purchases a property in a special flood hazard zone and will be taking a mortgage on that home (or business), is required to purchase flood insurance on it.  Since 70% of the homes and businesses in the country finance the purchase of real estate, most will be effected by this reform.

When the full increase goes into effect, the cost of the flood insurance will be higher than most people’s principal and interest payments, making the purchase of a property in a special flood hazard area nearly impossible.  Unfortunately, these higher rates go into effect immediately for any new policies, thus if the buyer of real estate purchases a home or business in the flood area after October 1, 2013, they will pay the 10-fold increase immediately; there will be no phase-in period.  With this significant cost burden, buyers will choose not to look  at any property in the special flood hazard area, thus 70% of the potential buyers for these properties will no longer be potential purchasers of their homes or businesses.  With that said, real estate market values for homes or businesses in the special flood hazard area will drop significantly.  This will have a very dramatic effect starting October 1st of this year.

For those homeowners who currently own their home in the flood area, they will be unable to pay the increased cost of the flood insurance in a few years (25% increase each year) plus their principal and interest payments and will begin to walk away from their homes and let the banks repossess them, thus increasing the number of properties on the market and driving the real estate market down even lower.

Because the market values will have dropped significantly, a homeowner will be applying to their county’s assessment office for a re-assessment of their property.  All the government taxing bodies shall see a significant drop in their taxable values.  It is a total snowball effect that this act has on any property owners in the special flood hazard area.

We don’t profess to have the answers, but can only predict that this act will be the total demise of river towns such as Milton and any other communities that have significant flood plains.

We do know that after a flood, real estate market values do drop somewhat for several years after and people start to “forget” about the river and flooding.  That will no longer be the case — market values are about to drop significantly and for most homeowners (and business owners) their home/building is one of their largest assets.  Not any more.

Our US Senators Casey and Toomey need to hear from you and hear your concern on this issue as well as our local House of Representative Tom Marino.  It is important that you contact all of them, not just one, so they all hear your concerns.  Here are they links to their websites:

Senator Pat Toomey:  http://www.toomey.senate.gov/?p=contact   Phone: 717-782-3951

Senator Bob Casey:   http://www.casey.senate.gov/contact/         Phone: 202-224-6324

House Representative Tom Marino: https://marino.house.gov/contact-me/email-me                Phone: 570-374-9469

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