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Soaring flood insurance rates fuel anxiety in real estate

Concern about rising flood insurance rates — triggered by the Biggert-Waters Act of 2012 — has been percolating for months. Starting next month, older homes in flood zones will typically see annual rates jump more than 20 percent, including a fee for a new reserve fund
Published Sep. 11, 2013

ST. PETERSBURG — Nearly 40 real estate agents packed the sweltering conference room in downtown St. Petersburg this week to hear flood insurance expert Pete Travis describe the new — and expensive — world coming Oct. 1.

He didn't pull any punches.

Many older homes in flood zones have long benefited from a big subsidy that kept flood insurance rates very low. Starting next month, those homeowners will typically see annual rates jump more than 20 percent, including a fee for a new reserve fund. A late payment could cost them their subsidy immediately.

If the owner sells the home, the buyer will lose the subsidy. That could, as in one scenario, raise a premium that had been $1,400 a year to $9,500.

Travis wasn't hopeful of a congressional reprieve in the next couple of weeks.

"Have I demoralized everyone here?" he asked.

Concern about rising flood insurance rates — triggered by the Biggert-Waters Act of 2012 — has been percolating for months. Now, just weeks before the law's main provisions take effect, real estate agents and communities from Apollo Beach to Treasure Island are galvanizing, worried about falling property values, busted real estate sales and a crippling effect on the broader economy.

"This is a major change," said Patty Latshaw of St. Petersburg-based Wright National Flood Insurance Co., the biggest writer of federal flood insurance in the country. "I'm just glad to see people are realizing what is going on and asking questions and becoming involved. Finally."

For Cristy and Fred Assidy, reality hit too late.

After 15 years in their "starter home" in St. Petersburg's Shore Acres, the couple was excited recently to close on a new home in Riviera Bay near Weedon Island.

Then came a shocker.

During this first year, their premium through the National Flood Insurance Program is a doable $1,700; next year it jumps to $17,000. For a house they bought for $205,000.

"This is going to devastate the real estate market here just when it's barely making a comeback," Cristy Assidy said. "People are going to leave the state in mass exodus."

Biggert-Waters was intended to help keep the National Flood Insurance Program afloat after suffering huge losses from Hurricane Katrina. Key to the makeover was getting rid of subsidized rates, in some cases gradually and in other cases — like the sale of a home — in one fell swoop.

Most flood policyholders nationwide will see only single-digit increases in rates next year. In fact, just 20 percent of all flood policies in the United States are subsidized. But in Florida, the impact will be much greater. With 40 percent of all flood policies nationwide, Florida has by far the most subsidized homes.

More than 50,000 of Pinellas County's 142,000 properties with flood policies have subsidized flood rates, more than any other county nationwide.

For someone staying in a subsidized home in a high-risk flood zone, rates will typically rise 16 or 17 percent Oct. 1. That doesn't include a 5 percent charge toward the new flood reserve fund.

The impact is more immediate, and devastating, for recent buyers of subsidized properties, like the Assidys, or those who let their subsidized policies lapse. After Oct. 1, their premiums will reflect the full "risk-based" rate, typically adding many thousands to their premiums.

Homeowners feel trapped, unable to sell and potentially facing double-digit annual rate increases if they stay. Some buyers of flood-subsidized properties feel duped, unaware that because their deal closed after July 6, 2012, they'll be forced to pay the full rate when they renew after Oct. 1.

St. Petersburg real estate agent Bonnie Davis, who organized this week's briefing with Travis, surmised the industry may have been late to mobilize because many thought Congress would intervene by now.

"The Realtors are starting to speak up now because they're starting to lose some deals. And this really is just the tip of the iceberg," said Christopher Heidrick, an insurance agent from Lee County, which like Pinellas is one of the hardest-hit counties.

Heidrick worked with a buyer from the U.S. Virgin Islands who planned to purchase a 900-square-foot home in Sanibel — until he found out the flood premium would jump from $2,440 to $16,092 when he renewed next year. "That blew up the deal," he said

Pinellas County Property Appraiser Pam Dubov thinks it's premature to speculate on the impact on market values and the broader economy. Beachfront home prices are up about 9 percent from a year ago.

Fourth-quarter results, Dubov said, could be radically different based on a rising number of anecdotes of pending sales gone bad because of the flood premium disclosure.

"I don't want to pretend this is going to go away and suggest this isn't going to affect the market because that's ridiculous," Dubov said. "There is no way this is not going to do that."

On the other hand, she said she doesn't want to alarm people that "every house prior to 1975 in a flood zone is worth nothing."

There are several measures being discussed in both the U.S. Senate and House of Representatives to stave off "unintended consequences" of Biggert-Waters. But so far the sole measure that has passed the House would delay only a small part of the law — and wouldn't stop the premium hikes from hitting new buyers of subsidized properties.

On Monday, the Independent Community Bankers of America echoed calls for a freeze on any increases until FEMA can complete a study on the impact on home affordability. Moving forward Oct. 1 threatens to price people out of their homes, destroy home values and disrupt the housing market's recovery, the bankers group maintained.

Property owners caught in the middle of the financial squeeze, like the Assidys, can only hope for the best.

The couple contacted FEMA to see if they can qualify for a grant to elevate their new home. But Cristy Assidy doubts that will work out in time.

"Apparently those dollars are kind of hard to get, and there's a limited time you can (apply)," she said. "I just hope the government just sees the light and realizes this will kill the real estate market here."

Jeff Harrington can be reached at or (727) 893-8242.


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