Los Angeles real estate expert Sara Skelton, a Realtor at eXP Realty and host of The LA Real Estate Podcast, says California’s property insurance market is rapidly contracting, creating a new crisis for homeowners and buyers in high-risk areas.
The Shrinking Market
“As of a couple of years ago, there was only two insurance companies that would insure us, and one of those companies now no longer is,” says Skelton, describing the situation in her own high-fire-risk area. This dramatic reduction in insurance options, she argues, signals a broader crisis affecting California homeowners.
The Cost Surge
According to Skelton, even those who can find coverage face steep increases. “My policy went up $1,000 in the last 12 months, which is less than I was expecting,” she notes, suggesting that many homeowners face even steeper hikes.
Impact on Home Buying
The insurance crisis is reshaping the home-buying process, Skelton argues. “When we’re writing offers now, if you’re writing with a loan condition, equally important to make sure that you are also getting insurance quotes during your inspection condition,” she explains, noting that insurance availability can now make or break deals.
The FAIR Plan Fallback
While California’s FAIR Plan provides a safety net for properties that private insurers won’t cover, Skelton says it comes with significant drawbacks. “It’s expensive and there’s a lot of restrictions. It doesn’t give you amazing full coverage,” she explains, suggesting it’s a last resort rather than a solution.
Market Implications
The insurance situation is affecting the broader real estate market, according to Skelton. With approximately 1.5 months of inventory in her zip code – well below the six months that typically indicates a balanced market – the insurance crisis adds another layer of complexity to an already challenging market.
Looking Ahead
Skelton suggests the situation may worsen before it improves. “We’re all terrified of our insurance premiums now,” she says, though noting that recent legislation aims to help stabilize rates and prevent policy cancellations.
For potential buyers, Skelton emphasizes the importance of understanding insurance costs and availability before making purchase decisions. “It’ll make a big difference with your monthly payment,” she warns, suggesting that insurance costs could increasingly influence where people choose to buy.
