Recent changes in the homeowners insurance landscape in California are set to impact Bay Area residents. State Farm and Allstate’s decision to stop writing new homeowner policies in the state is likely to result in rising insurance premiums and limited coverage options. The effects of these developments are particularly significant for potential homebuyers, as securing homeowners insurance is typically a requirement for mortgage loans.
Real estate agents in the outer Bay Area region have expressed concerns over the potential impact on home prices, especially in areas prone to wildfires. Despite expectations that increased interest rates would slow down the momentum, the demand for homes remains high, leading to multiple offers and above-asking prices.
While California does not legally require homeowners insurance, most mortgage lenders impose it as a condition for loans. In Santa Rosa, which witnessed the devastating Tubbs Fire in 2017, finding insurers willing to cover most homes has not been too difficult. However, new homeowners may now face greater challenges in finding suitable coverage and must be prepared to pay higher premiums due to the absence of options from State Farm and Allstate.
The situation in the Santa Cruz mountains is more worrisome, particularly given the ongoing risk of wildfires. State Farm and Farmers Insurance are currently the only prominent insurance companies offering policies for mountain homes. Farmers Insurance often requires homebuyers in the Santa Cruz mountains to purchase the FAIR Plan for fire insurance, a state-offered option meant for high-risk fire areas that other insurers refuse to cover. The FAIR Plan tends to be more expensive, making it a less affordable option for homeowners.
Without State Farm as an alternative for new homeowners, the reliance on the FAIR Plan is likely to increase significantly. Furthermore, starting in July, new homes will be required to undergo septic system inspections at the point of sale, adding to the financial burden of purchasing a home in the mountains. This combination of factors may hinder homeownership, especially for first-time buyers struggling to enter the market.
The rising cost of insurance, particularly as more homeowners opt for the FAIR Plan, could lead to compromises in home purchases. Potential buyers may need to consider homes with fewer bedrooms, locations further away from their desired areas, or properties in need of repairs to accommodate their budgets.
Some experts believe that the high insurance premiums could result in fewer offers for homes in mountainous areas, potentially exerting downward pressure on prices. Sellers might adjust their asking prices or offer credits to offset the cost difference for buyers who are otherwise qualified to purchase the property. This situation could prompt a reevaluation of the housing market, as it addresses the need to align home prices with income levels.