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Real Estate: Blown Off In Florida

Residents of Florida don’t need an anniversary to remember Katrina; they get a reminder every month in their homeowner’s insurance bill. The devastating hurricane season of 2005 caused and is still causing many insurers to either raise rates or drop coverage entirely.

“They’ve been dropping people like flies, all across the Gulf Coast and especially in Florida,” says Jack McCabe of Florida-based McCabe research and Consulting.

Debris litters the beach Thursday, Sept. 16, 2004, in Pensacola, Fla., in an aerial photo taken by the U.S. Coast Guard.  The Coast Guard, along with the Federal Emergency Management Agency, spent most of the day assessing damage to ports, waterways, land and property.  (AP Photo/U.S. Coast Guard Air Station New Orleans)
AP
Debris litters the beach Thursday, Sept. 16, 2004, in Pensacola, Fla., in an aerial photo taken by the U.S. Coast Guard. The Coast Guard, along with the Federal Emergency Management Agency, spent most of the day assessing damage to ports, waterways, land and property. (AP Photo/U.S. Coast Guard Air Station New Orleans)

In fact, just this week, Nationwide Insurance announced it will “non-renew” approximately 39,000 homeowner policies and 1600 commercial property policies.

“Nationwide is making some difficult choices today that will better position the company to deal with the many challenges posed by the Florida insurance market,” said Jeff Rommel, regional vice president of Florida Operations for Nationwide in a statement.

“We’ve seen three million homeowners in the last two years lose their insurance, about 2.1 million of those being in the South, so the South is taking a big hit, and of course that does affect the real estate market,” says Robert Rusbuldt, CEO of Independent Insurance Agents & Brokers of America.

The National Association of Realtors estimates that higher insurance costs have knocked $20,000 off the price of a Florida home. In a recent NAR survey, 80% of the agents said they had lost sales due to insurance affordability and availability.

“What we’ve seen in Florida and many of the Gulf states is homeowners insurance has seen 300%-400% increases in just the last two years,” adds McCabe.

That, in turn, has had a direct effect on real estate sales and prices in the state, which is also grappling with high property tax rates and the near evaporation of the investor and speculators that fuelled the recent real estate boom. Prices are down, year-over-year, 2% in Orlando, 4% in Tampa and 11% in Sarasota in the second quarter of this year, according to the NAR.

“If you look at your principal, interest, taxes and insurance, and you factor in the insurance part of that in your monthly payment it's a significant hit for a lot of people,” says Rusbuldt.

With Nationwide dropping policies on top of Allstateand State Farm, which have already dropped over 106,000 homeowner insurance policies, many in Florida are forced to go to the state insurance agency, Citizens Insurance, where rates are quite high by national standards.

“There is no competition in the homeowners market in places like Florida,” says Rusbuldt. “So there are certain things that have to be done to create that competition to bring homeowners insurance rates down to make it more affordable and available to homeowners in the southeast.”

Some are asking for government intervention, perhaps for a federal reinsurance backstop, that is, insurance for the insurers.

Until there is more competition, however, Florida will likely lose potential homeowners and businesses, driven away by sky-high insurance prices. That can only have a negative effect on the long-term economic growth of Florida and some of the other Gulf Coast and Sun Belt states as well.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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