Home Insurance Prices Blamed for Increase in Foreclosures

Foreclosure filings are rising in several Southern cities vulnerable to major storms, and the rising cost of home insurance has been blamed for the financial distress on homeowners.

In Houston, foreclosure filings in the primary quarter were up 36.5% 12 months over 12 months, in line with data from ATTOM. Other large increases were documented in Orlando (28.1%), Tampa (20.9%) and Miami (18.8%).

In an article analyzing the ATTOM foreclosure data, Bloomberg reported that higher insurance costs and rising property taxes are likely reasons for the rise in foreclosure filings.

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The recent surge in home insurance costs has also been linked to foreclosures in cities like Latest Orleans, where representatives of Habitat for Humanity, a nonprofit that builds homes for low-income people, say greater than 100 residents are facing foreclosure as premiums have skyrocketed, even doubling for among the affected homes in a two-year period.

Overall within the U.S. home insurance costs have risen 20% since 2021 to a median of $2,377 in 2023 and are expected to extend one other 6% to $2,522 in 2024, in line with Insurify, a web-based marketplace.

Rising home insurance costs could lead on to foreclosures

A big body of research shows that unexpected changes in monthly budgets are the “big impetus for foreclosure,” in line with Benjamin Collier, associate professor of risk management and insurance at Temple University.

That could possibly be someone becoming unemployed or having a sudden health shock, he says. But when foreclosure filings rise sharply in a city or region, the cause is frequently more systemic.

“We’re seeing consumers experiencing rising [insurance] costs, and in some cases, costs notably higher than they expected after they were buying that home initially. In a few of these examples, insurance prices are going up 25% 12 months on 12 months for a few years in a row,” Collier says.

While he says researchers are still early within the technique of investigating the impacts of rising home insurance costs on American households, the surge appears to be a possible offender for the rise in foreclosures in certain cities.

Beyond the South, foreclosure filings are also up sharply in some large California cities like San Francisco (39.9%) and Sacramento (32.1%), though home insurance is mostly less expensive out West.

This 12 months, the typical insurance policy is anticipated to cost $11,759 in Florida, $7,809 in Louisiana and $4,437 in Texas, in line with Insurify. While California’s home insurance marketplace has had its share of issues, with some insurers leaving the state resulting from heightened wildfire risk, the typical cost is just expected to be $1,921 in 2024.

Rob Barber, CEO at ATTOM, tells Money it’s still not clear why foreclosure filings are rising in certain cities.

“These trends could also be resulting from nothing greater than lenders with backlogs which can be now being filed in court, resulting in increases in activity,” he says.

Nevertheless, Barber ran through among the aspects he thinks usually are not in charge for rising foreclosures. For instance, unemployment and residential equity issues aren’t particularly pronounced within the affected cities. “Property tax increases also don’t provide much of a clue,” he says. “Average property taxes went up by lower than $50 per thirty days (or declined) in all 12 of the metropolitan statistical areas (MSAs) on the list with foreclosure increases.”

Here’s that list of cities, consisting of the 12 metros with the biggest increases in foreclosures filings out of the 25 areas with essentially the most filings in the primary quarter of 2024:

Boston-Cambridge-Newton, Massachusetts-Latest Hampshire — 1,086 filings (+47.8%)
San Francisco-Oakland-Hayward, California — 1,188 filings (+39.9%)
Houston-The Woodlands-Sugar Land, Texas — 3,020 filings (+36.5%)
Sacramento–Roseville–Arden-Arcade, California — 811 filings (+32.1%)
Orlando-Kissimmee-Sanford, Florida — 1,403 filings (+28.1%)
Tampa-St. Petersburg-Clearwater, Florida — 1,426 filings (+20.9%)
Miami-Fort Lauderdale-West Palm Beach, Florida — 3,011 filings (+18.8%)
Jacksonville, Florida — 838 filings (+9.8%)
Los Angeles-Long Beach-Anaheim, California — 3,252 filings (+5.6%)
Riverside-San Bernardino-Ontario, California — 2,045 filings (+4.3%)
San Antonio-Latest Braunfels, Texas — 908 filings (+2.1%)
Dallas-Fort Value-Arlington, Texas — 1,651 filings (+1.7%)

Note: Nationally, foreclosure numbers remain low by historical standards. In keeping with a recent report from CoreLogic, 0.3% of homes are within the foreclosure process, which is just barely higher than the record low of 0.2% in early 2022.

Homeowners adjust policies, skip insurance — or move

Households are coping with higher insurance costs in several other ways, and experts are concerned a couple of trend of individuals reducing coverage or dropping it altogether.

Some homeowners are increasing their deductibles for a cheaper premium. In keeping with Guaranteed Rate Insurance, a national brokerage, the share of policies with deductibles between $1,000 and $2,500 decreased by 17% since 2019, while the share of deductibles within the $5,000 to $10,000 range increased 49%.

Others are only paying for coverage at a level where their homes are considered “underinsured,” and a few are simply skipping home insurance. (Insurance is mostly required if you have got a mortgage, but those that own their homes outright can go without it.)

In keeping with the Insurance Information Institute, 12% of house owners didn’t have home insurance in 2023, and a recent survey by ClaimGuide.org found that 1 in 5 people say they might forego insurance if it was an option.

Collier says these trends mean more homeowners could face financial devastation when disasters occur.

“People going underinsured or without insurance could have a far more difficult time recovering from a severe event, and that is especially concerning in high-risk areas,” he says.

Lastly, higher home insurance costs “are prompting some people to relocate,” in line with Redfin. Amongst a surveyed group of Florida residents who intend to maneuver in the subsequent 12 months, 11.9% said rising insurance costs were a reason. That is nearly double the share nationally (6.2%).

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