California's insurance crisis is causing home sales to decline

Home sales in California are plummeting as homeowners struggle to find insurance, while many private companies are cutting coverage, refusing to renew policies or pulling out of the state entirely.

According to a new report from the California Association of Realtors (CAR), 13 percent of real estate agents in the Golden State had a sales transaction canceled this year because insurance was unavailable or unaffordable. That's double the 6.9 percent reported by California real estate agents a year earlier.

As California faces the growing risk of more frequent and extreme natural disasters, including wildfires, insurance options have become dramatically more scarce and premiums more expensive.

Finding an affordable home is already difficult in California's expensive real estate market, which has struggled with year-over-year price increases for 15 consecutive months since July 2023, according to Redfin. Buyers could be deterred from purchasing a property if they cannot find suitable insurance coverage. In this situation, insurance may be more important than the price of a home in determining whether a buyer can actually afford the property.

The ongoing crisis in the state's homeowners insurance sector has become the biggest issue impacting housing and homeownership in the state in 2024, according to CAR.Newsweek contacted CAR via email early Tuesday morning for comment and further information.

Due to cancellations and non-renewals, many homeowners struggle to obtain insurance, often relying on the government insurer of last resort to offer it to those unable to purchase a policy on the private market. This is supposedly a purely temporary solution that is not sustainable in the long term – especially if the number of policyholders gets out of control.

Insurers are cutting coverage, leaving California or trying to raise premiums as risks grow in the state, particularly in areas hit hardest by fires, and their ability to make a profit dwindles.

According to Mark Sektnan, vice president of state government relations for the American Property Casualty Insurance Association, insurers have paid out $1.13 for every dollar they have taken in over the past decade.

The state's strict regulation, designed to prevent insurance premiums from suddenly rising beyond what homeowners could reasonably expect, contributes in part to the problem. According to NerdWallet, the average cost of homeowners insurance in California is currently $1,250 per year, about 35 percent lower than the national average of $1,915.

California Insurance Commissioner Ricardo Lara has promised reforms around rate change rules by the end of 2024, but the Central African Republic recently expressed skepticism that this would be enough to provide relief for homeowners – and the housing sector as a whole.

In August, the state Department of Insurance allowed Allstate to increase its home insurance premiums by an average of 34.1 percent, the largest rate increase allowed to a major insurer in California in the past three years. However, the immediate impact of these rate increases is likely to place an additional burden on homeowners and homebuyers in the state.

Newsweek contacted the California Insurance Commissioner's office via email early Tuesday morning seeking comment.