How is the homeowner's insurance crisis affecting the San Francisco real estate market?

A: In California, it is a prerequisite for securing a mortgage to obtain homeowner’s insurance. Over the past year, we saw more and more home insurers limiting new policies or pulling out of California altogether. This crisis of homeowner insurance accessibility is affecting the San Francisco real estate market by worsening an already challenging affordability landscape. Soaring insurance costs and limited coverage options are giving potential buyers another reason to hit the pause button. Additional expenses and concerns from this situation can include:

• ESCALATING PREMIUMS: Insurers are hiking up premiums as they face concerns with wildfire, climate and earthquake risks coupled with increased construction costs. This translates to steeper insurance bills, adding to monthly expenses.

• MORTGAGE QUALIFICATION: Because insurance is required to secure a mortgage, buyers are forced to allocate more of their income to cover premiums, impacting their overall mortgage eligibility and capacity.

• UPGRADES AND COMPLIANCE: Comprehensive insurance coverage could demand significant property upgrades, straining a homeowner’s finances.

New homeowners are feeling the squeeze from multiple angles, as upfront costs and ongoing financial commitments from the insurance crisis are compounding existing affordability challenges. It is certainly adding unexpected twists and turns in an already complex real estate market.

Original article published in the San Francisco Chronicle on February 11, 2024