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Lenders, Realtors lament dearth of affordable insurance

The dearth of affordable wind insurance coverage is still the number one issue affecting home sales on the Mississippi Gulf Coast.

With few exceptions, private insurance companies aren’t writing new wind policies for homes on the Coast. That leaves home buyers with no recourse except the expensive Mississippi Windstorm Underwriting Association, commonly called the Wind Pool.

“Increases in insurance costs are creating problems in much of Hancock Bank’s footprint,” says Daniel J. Zoble, mortgage division manager for Hancock Bank. “Of course, the coastal areas are feeling it the most. The end result of increasing any costs associated with buying and owning a home will be a reduction in the number of buyers unless the average income of potential buyers increases proportionally.”

Zoble says Hancock Bank’s home loan production has been pretty good in the past two years. But when you consider the need for housing in these markets, the bank anticipated more.

“We expected to see much more activity than we have,” Zoble said. “On the Mississippi Coast, the greatest new construction activity is north of Interstate 10. There are a few reasons for this, but one is that the cost of insurance is less the farther north of the Coast you go. In some areas within commuting distance to the Biloxi/Gulfport area, the insurance costs are nearly one-fourth of that south of I-10.

“We expected to see a more significant increase in our new construction and renovation business by this point in time. The cost of insurance has slowed the pace of the recovery for businesses and homeowners. But make no mistake, we see the recovery happening, just at a slower pace than everyone expected.”

Zoble says the average cost to insure a home has eliminated some buyers from the entry-level housing segment. And, many of those who can still afford to buy a home find themselves forced to buy a smaller, less expensive home.

“Some builders are offering to pay the first year’s insurance premium for the buyer, and I expect we will see other similar ideas showing up for the foreseeable future,” Zoble says. “The bottom line here is that the borrower must qualify for the monthly house payment, including the applicable insurance, regardless of who pays the first year’s insurance premium. So while this sort of offer will help reduce the buyer’s upfront costs, it won’t help them qualify for a larger loan.”

‘Killing everybody’

It is a tough market, says Thom Roberts, broker-associate with Chester Harvey Realtors, Ocean Springs

“The insurance is killing everybody,” Roberts says. “That surmises the whole market in residential and commercial. It is just terrible. Something has to happen to make insurance affordable. A person I know bought a 1,000-square-foot home four blocks the beach and her insurance bill is $4,200 per year. The main cost there is the wind and hail policy. You have people who before could have afforded homes in $200,000 range. With the insurance bill, that knocks it down to being able to afford only a $165,000 home. People are hesitating and may rent waiting for the insurance to come down and have some relief.”

Roberts says great hopes have been pinned on efforts by U.S. Rep. Gene Taylor to pass multi-peril insurance legislation that would create a federal wind policy similar to the federal flood program policy.

Royce Cumbest, CEO of Merchants & Marine Bank, Pascagoula, says in some cases people are paying as much for insurance as they were previously for their monthly house payment. The high insurance costs mean that land prices have been very high for locations farther north off the coastline where insurance rates are lower.

“I’m not real sure how long that will last,” Cumbest said. “It makes things unsettled as far as valuing property. Hopefully, if we go another year without storms, insurance rates will go down and home building activity will resume.”

Relief vital?

Some kind of insurance relief is vital for the long-term growth of the Coast.

“That is true for Florida and all the coastal states,” says Jim Atchison, broker/owner, Re-Max Results, Biloxi. “With the cost of a home and insurance, employers here just can’t attract the employees they need. We have to get the cost back down. There will be some relief in tax credit properties that have lower rent, but that doesn’t take the place of home ownership. There are a lot of people who move to an area and want to buy a home. But they get here and are just sticker shocked at the price of insurance. Insurance costs are so high it is making affordability a real problem for most families. I would have to say on average it seems to be between three and four times more costly today than it was pre-storm.”

With the lenders permission, the purchasers can increase their deductibles as high as possible, and decrease the amount of coverage. But that really doesn’t make a big difference in the overall policy cost.

“It seems that the only thing a buyer can control is how much they spend on a house,” he says. “So they have to buy less home to stay in the same payment range.”

Another problem is there isn’t much affordable housing left. Atchison says he just isn’t seeing home sales in the $60,000 to $90,000 range. In Biloxi, most of the housing in that price range was destroyed by the storm and hasn’t been rebuilt.

Atchison says average sales price for homes have increased approximately 22% over 2005 and 2006. But the number of home sales has decreased.

“We still have a lot of people who have left the area and haven’t come back yet,” Atchison says. “In order to get these people back, we need to increase employment opportunities. We need to get our tourism infrastructure issues resolved so we can get our snowbirds and second home owners back.

“After the storm, we thought the market would explode, and great things would happen. We were optimistic for the first 18 months and then realized what a big process this is. It is important not to lose sight of the fact it has only been two years since the largest natural disaster in the history of America. We have come a long ways in two years, and a lot of these issues are going to be worked out. Our market will recover. All the negativity on the national market is making things look worse than they are.”

Challenges, challenges

Ken Austin, broker-owner, Mississippi Coast Realty, Pass Christian, agrees sales are down. That is partly because so many homes were destroyed in the storm that there are fewer left to sell.

“Sales of existing homes that survived Katrina are at normal levels,” Austin says. “Sales of vacant property had been slow after Katrina. They are beginning to pick up but are not back to pre-Katrina levels. Our biggest challenge right now is the availability of affordable insurance. It has proven to be a negative in the market, for certain. Some homes sellers are including a year’s worth of insurance as part of their expense in closing. That is an incentive to get people in. Most owners have to prepay one year’s worth of insurance in advance. That is a big chunk the seller can pay as part of an incentive to get a buyer into the house. Then their mortgage every month contains the escrow setting aside money to pay next year’s premium.”

Austin, who is president of the Gulf Coast Association of Realtors, says that group is working in conjunction with Mississippi Association of Realtors and the National Association of Realtors to work with congressional leaders in Washington to push for some form of national disaster insurance, particularly Gene Taylor’s bill.

“There have been some positive developments over the past few weeks,” Austin says.

He adds that building stronger homes is a natural outgrowth of Katrina as cities adopt updated building codes. The stronger you build, the more likely you are to reduce damage in the future.

“That is an upgrade that pays for itself in the long run,” he says.

Contact MBJ contributing writer Becky Gillette at bgillette@bellsouth.net.

About Becky Gillette

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