Real Estate

InsuranceCoverageBlog recently commented about a wire service story in which there is much wailing and gnashing of teeth about how high insurance premiums are impacting home sales and mortgage default rates

Of course, the beloved politicians have some ideas on how to rectify the situation. Quoting the wire story:

Sen. Mike Fasano, R-New Port Richey, points to a spike in the number of residential loan foreclosures in his Tampa Bay-area district as proof of the dire need for insurance reforms.

“People can no longer afford their mortgage payments because of their insurance premiums,” said Fasano, who has authored legislation that would provide grants to help low- and middle-income homeowners with insurance rate hikes.

InsuranceCoverageBlog responds:

That is correct.  You read that a state senator is proposing direct taxpayer subsidies of folks with high insurance premiums.

Considering the amount of attention the recent drive to rate adequacy has garnered, it’s not entirely surprising that state politicians are attempting to exercise some creativity.

While I’m sure that folks in, say, Lake City are thrilled with the idea of their tax dollars going to help homeowners along the Treasure Coast to pay their insurance bills, it’s not an idea I necessarily find offensive.

I’d be interested if an economist did a robust study to determine what the value is to that hypothetical Lake City resident of the benefits derived from the robust tourist industry. I wouldn’t be at all surprised if some benefit were found (after all, how is it that Floridians state-wide pay no income tax?)…in which case some degree of subsidization could be justified.

However, I suspect that the legislator making this subsidy proposal is pulling numbers out of thin air, to protect the constituents, rather than making a strong case based in sound economic theory.

Well, at least it’s more honest than the hidden costs that will emerge when a big storm hits and the state-run insurer quickly finds itself insolvent.

One of the maddening things sometimes about being an “insurance insider” is that it is very easy to get frustrated over consumer and legislative complaints over the cost of providing coverage in catastrophe prone areas.

While I agree that the industry could have done a better job of being self-aware of the magnitude of risk it has faced, thereby reducing the need for part of the property insurance rate shocks of the past couple of years, the fact of the matter remains that folks need to remember that there is a cost associated with choosing to live in harm’s way.

Judging by this article in the Tennessean, a few folks have been realizing that inland are places where it makes more economic sense to live:

Davis is one of more than 25,000 people who have moved from Florida to Nashville and surrounding counties since 1989, according to a state database of drivers’ licenses. The former Florida residents make up almost 10 percent of the area’s drivers who have relocated from out of state.

“It was getting impossible to get insurance on your home,” Davis said. “We got out just in time.”

The rising cost of homeowner’s insurance prompted many of those recent relocations from the Sunshine State, real estate experts said.

The article also mentions that it’s not just the cost of insurance that is driving folks to less-expensive locales, like Middle Tennessee. Housing prices in Florida have encouraged a few Floridian homeowners to cash in and move to where real estate prices are less astronomical, realizing a tidy profit in the process.

(Via Get Rich Slowly) The BBC has an article on the latest property to hit the London real estate market:

‘Table-sized flat’ for £170,000[...]

The former janitor’s storeroom measures 11ft by 7ft and has a cupboard place for a shower and kitchenette area.

Potential buyers can expect to fork out an extra £30,000 to make the room habitable as there is no lighting and it is full of rubble.

For those of you interested, that cost is a bit shy of $4,500 per square foot.

And I thought California and New England real estate prices were nuts!

There have been times where I’ve considered living someplace a little cheaper and warmer, but still commuting (or telecommuting) back to the northeast where, where my job is mostly based.

It seems I’m not the only one considering the long commute, although the reasons described in this Hartford Courant article are a little different:

When the median home price hit $731,000 in San Mateo County, Inman despaired of finding a home she could comfortably afford, even on her six-figure income. Rather than leave a job she loved, and unwilling to endure grinding freeway commutes from cheaper exurban developments, Inman abandoned her rented Mountain View home and bought a house she could afford two hours away - by plane.

Like California, Nevada is short of nurses. “But they’re not willing to pay,” said Inman, who figures that taking a job in Nevada would cut her annual pay in half. One key piece of that calculation: In California, Inman gets half of her workweek hourly wage of $65 for time spent on call - money she can earn even while sleeping. The comparable rate in her adopted home of Mesquite, Nev., is $2 an hour.

In housing, the disparity works in the opposite direction. Inman paid $450,000 to custom-build a 3,000-square-foot home with three bedrooms, an office and a guesthouse. It sits next to the No. 4 fairway of the local golf course, where her husband works part time. The same house would cost $1.5 million in Silicon Valley, and that’s without the golf.

It’s not quite the same situation as mine, but perhaps I’m not quite so nuts for considering an ultra-commute.

Well, OK, I am nuts. But at least there are other nuts in the tree.

Yesterday’s Commercial Appeal includes an article describing plans to put up a new luxury condo tower at the foot of Beale Street:

The tower will feature 168 hotel rooms and 159 luxury condos. The hotel rooms would occupy floors 5 through 10 of the building while the condos, which will range in price from $350,000 to $2 million, will finish out the tower.[...]

The first floor will hold a grand lobby, retail space, an upscale restaurant and a spa. There will be two floors dedicated to 75,000 square feet of Class A office space, and the fourth floor will be reserved for meeting and conference rooms.

That’s a real change from the Memphis I was introduced to almost 30 years ago, back when Beale Street was just a collection of historic, run-down/burnt-out ruins. To look at how the city has changed…even if it has lagged behind other southern hotspots like Atlanta and Charlotte… is impressive.

Shame there isn’t much call for P&C actuaries in the big M.

There have been articles in several places recently, such as this one at the Volokh
Conspiracy that would seem to indicate that housing prices are starting
to soften in several formerly hot markets.

This is not entirely unexpected, given what’s been happening with interest
rates over the past year and change. If anything, it’s been amazing…and
somewhat irrational…that the housing boom has continued as long as it has.

The economic impact of the deflation of the bubble should be interesting.
I’ve read that strong consumer spending — particularly spending related to
home-buying and ancillary purchases — is what has kept the American economy
going through what has been a generally sluggish environment around the
globe (albeit with some regional exceptions, such as China).

In my corner of the world, one of the drivers of the housing bubble has not
only been the relationship of cheap credit and low returns on other
investments, but also a lack of supply. Until recently, there wasn’t all
that much home-building taking place in/around Hartford.

That’s changed over the past couple of years, with hundreds of new homes
being built around the area, hundreds more new luxury apartment and condo
units going in downtown Hartford, and the explosion of “Active Adult”
communities around the area (including the 55 unit monstrosity going up
literally in my back yard).

Throw in some layoffs at key companies in/around Hartford…this could be a
very “interesting” situation arising locally.