The future of federal flood insurance — and thousands of home sales — is at stake as Congress struggles to settle on a federal spending plan.
A new analysis from the National Association of Realtors suggests that a lapse in the National Flood Insurance Program would almost immediately disrupt about 1,360 home sales daily, totaling more than 41,000 transactions monthly across the nation.
That outcome is becoming increasingly likely as legislators work to establish a budget for federal spending. The current budget was put in place in December and is set to expire Friday at 11:59 p.m. If a new budget isn’t passed by then, the government will shut down, and funding outlined in the previous budget, including for the insurance program, will expire.
From the Homes.com Blog: 7 Most Common Home Closing Delays
It’s just the latest threat to federal flood insurance, and the homeowners in need of the program’s protection.
While homeowners insurance typically covers disasters, including hurricanes, lightning, hail and fires, it does not include protection against flooding. Instead, residents must purchase flood insurance separately, either from the National Flood Insurance Program or on the private market.
For homebuyers purchasing houses in “designated special flood zone areas,” mortgage lenders often require flood insurance.
That said, if funding for the federal insurance program lapses, many homebuyers could be left vulnerable and unable to close on their home purchases, especially in states like Florida, Texas and California, according to Nadia Evangelou, senior economist and director of real estate research for NAR.
“Many buyers in flood zones may face delays in closing their loans while waiting for flood insurance to be secured,” she wrote in the analysis. “Some contracts may expire if the delay lasts too long, causing buyers to renegotiate or withdraw from the sale. From a seller’s perspective, this results in longer listing times and added uncertainty in the market.”
NAR urges Congress to fund flood insurance
Some states will feel the effects of a lapse in funding more than others.
In Florida, for example, about 15,000 home closings could be delayed or canceled in a month, according to the NAR analysis. In Texas, more than 3,500 transactions would be facing uncertainty, and in California, nearly 1,700 closings could be jeopardized.
On Monday, NAR President Kevin Sears sent a letter to leaders in Congress urging them to extend the program’s funding before it expires tomorrow.
“Americans deserve certainty and stability in the flood insurance marketplace so that they can protect their homes, businesses and loved ones,” he wrote. “Another lapse of the NFIP will leave millions of Americans at risk and disrupt the purchase of flood insurance in more than 20,000 communities across the United States.”
Evangelou’s analysis indicated that the effects of a lapse in flood insurance could extend beyond the housing market, too. In fact, the disruption could cause a ripple effect throughout the economy, costing up to about $70 billion per year.
"The federal government provides crucial assistance to property owners, sellers and first-time homebuyers through a myriad of programs, many of which have become ingrained into the process of buying or selling a home," Shannon McGahn, NAR's executive vice president and chief advocacy officer, said in a statement. "Disruptions to those programs will cause uncertainty in the real estate market and ultimately hurt the U.S. economy.”
For more information about your home’s flood risk, visit the FEMA Flood Map Service Center.