The housing market may face further challenges as a potential government shutdown looms, threatening the sales of homes in flood-prone areas. The National Flood Insurance Program (NFIP), which offers flood insurance, may not be reauthorized by Congress before the potential shutdown, potentially affecting mortgage approvals for homebuyers in high-risk flooding areas. This could impact around 9,000 home closings each week, according to analysts. Without flood insurance, buyers may be unable to secure financing or face additional fees, threatening property sales.
The majority of flood insurance in high-risk areas is supported by the NFIP, as many private insurers have withdrawn from the costly market. The NFIP currently serves over 5 million flood insurance policies and protects over $1.28 trillion in assets, making it the nation’s largest single-line insurance program. Flood insurance is mandatory for homebuyers financing their purchases in flood zones, and lenders require coverage to mitigate the risk of natural disaster losses. The potential lapse in the NFIP comes during hurricane season, further increasing concerns.
The risks and number of floods in the US have been increasing, with the hurricane season in 2020 being the most active ever recorded. The average flood insurance claim payout was $66,000 from 2016 to 2022, highlighting the potential financial loss homeowners could face without coverage. With flooding being the most common and destructive natural disaster in the US, leaving millions of Americans at risk, the joint letter from industry organizations urges for an immediate extension of the NFIP to protect property owners, buyers, and renters in more than 20,000 communities across the country.