Why Hurricanes in Florida and Fires in L.A. are Killing Your Home’s Equity

Why Hurricanes in Florida and Fires in L.A. are Killing Your Home’s Equity
Rising insurance costs drain your home’s value — even far from disaster zones.|©iStock/csfotoimages

The American home has been the largest store of wealth for generations. Not only does it provide a roof over our heads; rising property values have made it a perfect way to save for retirement. And we pass some of that wealth on to our heirs.

All this is ending. The reason is straightforward… and the solution will surprise you.

In 2022, the US experienced 23 natural disasters that led to insurance payouts of a billion dollars or more. The number increased to 28 in 2023, with a total cost of $92.9 billion for the insurance industry. In 2024, just two hurricanes led to over a billion dollars’ worth of claims in Florida and other southeastern states. The January 2025 wildfires in and around Los Angeles are projected to be the costliest natural disaster in US history.

US property insurers simply cannot continue like this. Their decisions are going to pull the rug out from under the housing equity of millions of vulnerable Americans… especially retirees.

Any home with a mortgage in the United States requires property insurance. The premium is part of the buyer’s monthly payment, along with principal, interest, and property taxes.

In 2024, the average annual cost of homeowners’ insurance in the United States was $2,377, a little under $200 a month. But places subject to frequent natural disasters, like Florida, have experienced incredible increases in property insurance costs. As recently as 2021, the average premium for Florida homeowners’ insurance was at the national average. But since then, there’ve been huge double-digit increases every year:

YearAverage PremiumMonthly% Increase
2021$2,380$198
2022$4,231$35378%
2023$6,000$50042%
2024$11,759$98096%
2025$14,464$1,20523%

A house’s selling price depends on what buyers can afford to pay monthly. The higher the combined monthly payment, the fewer potential buyers can afford to buy the home. Ergo, as insurance costs rise, house prices must fall to keep the combined payment affordable.

Rising insurance costs will thus drive down the equity value of US homes, stripping their owners of wealth, resources for retirement, and wealth to pass on to their heirs.

This trend is set to continue… and not just in disaster-prone places like Florida.

A recent study by investment house First Street found that given current risks, US homeowners’ average insurance pricing would rise to 50% of their monthly mortgage payment by 2055. And in coastal cities and fire-prone areas, insurance price increases could range from 140% (Sacramento) to 325% (Miami)!

The bottom line is that many other parts of the US are going to face Florida-scale insurance problems with the ultimate impact bearing down on ordinary Americans’ homes and wealth.

Compounding this will be migration away from areas vulnerable to risk of natural disasters. First Street estimates that over 55 million Americans will leave their homes to avoid such risk and the consequent rise of insurance and falling property values. That will reduce demand and therefore housing values… further decimating the equity millions of Americans have built up in their homes over the years.

And because of the unique nature of the US insurance market, this trend is set to affect markets that aren’t directly threatened by natural disasters,

The US is one of the most heavily “financialized” countries in the world. The FIRE sector—finance, insurance, and real estate—forms over 20% of total GDP, 5% more than in comparable economies.

Counterintuitively, however, the top four casualty property and casualty insurance companies in the US only hold about 28% of the total P&C market, compared to about 35% in Europe. In Costa Rica and Uruguay, it's nearly 70%.

The reason for the differential is the structure of US insurance markets. Each US state has its own insurance commissioner, and typically a Department of Insurance. Insurance commissioners are typically elective positions, so they have an incentive to pander to consumer sentiment. Accordingly, many states ban or limit the use of credit scores, zip codes, and other factors when deciding on premiums. State laws sometimes dictate mandatory coverage, liability limits, excesses, and other policy terms.

Big US insurance companies therefore operate in 50 different markets. They choose whether or not to offer insurance in specific states based on its regulations. Increasingly, insurance companies choose not to operate in states where laws limit their profits.

The result is that the risk pool for US P&C insurers is often much smaller than in other countries. A US property insurer might only be able to cover 3% to 5% of the national housing market. A comparable insurer in Europe or Latin America might cover 30% to 40%. This means US insurers cannot spread their risk as widely.

That’s why US home insurance tends to be more expensive than in the rest of the world. And as natural disasters become more common, insurance insurers will try to recoup their losses by raising premiums even in states unaffected by them.

Even as the demand for housing grows rising insurance costs will have such a big impact on affordability that sellers will have no choice but to lower their asking prices. The upshot is that American homeowners across the country are beginning to face an inevitable decline in the equity value of their homes, affecting their wealth and future plans.

Everyone— especially retirees—will grow gradually poorer.

Next week I’ll explain the solution to the collapse of the American Housing Dream…

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