Real Estate Crash thread

[jackstraw]

There's this thing called climate change making yearly risk escalate. Being there for 50 years doesn't mean it can't get wiped out next year.
Geico cut by nearly 500 mil, marketing budgets are the first to go.

https://www.spglobal.com/marketintel...spend-81079056

Yeah, but saying "don't build in flood or fire zones" that historically never were is Monday morning qb take. Do we expect people getting dropped to just pick up and move after x amount of years in their home. It's a suck situation all around, but the fat players can suck it up a bit. Of course they'll just cut their employees and services while the suits stay plump.

[Conundrum]

Many of those buildings have been there for half a century or more.

Many of those buildings have galvanized pipes with a lifespan of 50-100 years if not replaced. Insurance is to hedge against uncertainty and unknown risk. If it's predictable, more insurance companies are going to forego participating.

Yep. My HOA had a roof leak that damaged another unit and decided to pay out of pocket.

How old or what condition was the roof in? Probably a good move to not tip off the insurance company. They are using drones and pulling permits to check this stuff. If your buildings are ending the lifespan of the roofs, would make sense for the board to start bidding replacement. And for that ski in ski out, is there a pending cap ex assessment coming in addition to insurance.

[schuss]

Yeah, but saying "don't build in flood or fire zones" that historically never were is Monday morning qb take. Do we expect people getting dropped to just pick up and move after x amount of years in their home. It's a suck situation all around, but the fat players can suck it up a bit. Of course they'll just cut their employees and services while the suits stay plump.

I was mostly referring to the dumbasses out west building in wildfire zones or some of the newer developments in seasonal swamps.

[xyz]

Come on now. Many of those buildings have been there for half a century or more. Have you been to the beach down the street from where you live lately?

Fuck the insurance companies. All of a sudden their fat profits aren't as fat.

That industry has been raping Americans for a long time. How about cutting your advertising budget by...hmm, let's say a billion, Geico. That may make it easier to insure the average Joe just trying to live where they grew up.

Insurance is such a racket. They know the risks and price very favourably in their favour. If there is some massive claim, they just pass the cost over to us in next years rates. We just have to pay it. Great business. My BIL is an insurance executive dude and is basically drunk all day with clients on golf course and 5 star restaurants. probably making 7 figures a year.

[jackstraw]

Insurance is such a racket. They know the risks and price very favourably in their favour. If there is some massive claim, they just pass the cost over to us in next years rates. We just have to pay it. Great business. My BIL is an insurance executive dude and is basically drunk all day with clients on golf course and 5 star restaurants. probably making 7 figures a year.

I know a couple insurance guys too. Same deal. Golf and restaurants constantly with commercial customers and they're living fat hardly "working". Great "job".
To be fair, many industries have similar scenarios.

[schuss]

You're just describing sales.

[Conundrum]

Ha! The dinners do get old. Would rather grill and have beer after a bike ride but duty calls.

[fastfred]

Yep. My HOA had a roof leak that damaged another unit and decided to pay out of pocket. Annoying as shit since that's exactly why you pay insurance but they were scared of getting dropped. A nearby HOA filed claims for some things and they were dropped, just like you said. There's a ski in ski out condo there that no one is touching even at 500K because the HOA/insurance is so expensive now. So I guess I'm glad my HOA did what they did..

this
so many people just pick up the phone calling their insurance agent because they belived the commerical they saw on tv

people filing a claim for 10k to 20k in damage is crazy to me
never never never file a claim unless you really have to

[ötzi]

many states won't let you price based on the future outlook of climate change

How can you possibly sell insurance if you can't figure in a known risk?

[fastfred]

Insurance rates for HOAs in condo buildings have been going crazy around here. One of our condo buildings was dropped from their insurance and had to reinsure at 5x higher rates. This means the hoa fees will be going through the roof. Apparently it has been happening all over the county at least.

companies are dropping any complex with a total value of over 50 million
I know lots about this shit its crazy whats going on

but like someone else said here shit box condos that no one has done the slightest updates to are a dime a dozen even in summit county

every time I goto bid or look at a condo hoa project one I ask them about money and if they are looking for the cheapest number (this is 75% of them) and if I do an estimate I clearly put at the top this is dangerous someone is going to die or this needs to be fixed asap or you have a couple years but in better terms and use big words that I get from gramerly

[schuss]

How can you possibly sell insurance if you can't figure in a known risk?

Welcome to state regulation. Some states mandate pricing only use historical and not projected data. Getting rate approved for the US involves fed+50 states separately, all with varying rules. It's joyful.

[xyz]

never never never file a claim unless you really have to

Agreed. And don’t buy insurance unless you have really have to. They usually fight you to death on claims anyway then jack up your rates if they do pay out.

The money I save on not buying insurance should pay for that one time I needed it.

[dunfree]

The idea of insurance is to finance risk and spread the cost over a larger group. The risk drives the cost unless you want it to be a gov controlled social program. Affordability is all relative. Affordable can be is the premium less than the loss it's protecting and the ratio is different for everyone. You could ask can you afford to lose whatever you are insuring without compensation? Can you afford to insure it? Can you afford to have whatever you are trying to insure? Are you willing to make a choice to sell what you are trying to insure and buy something with less value or in a less risky location?

There are four ways to deal with risk-prevent, transfer, finance and mitigate. If you want to get more philosophical, financing risk would be a lot cheaper for a lot of reasons. Eating healthy and exercising, not rebuilding in areas that are known to flood or burn, not driving cars with with $5,000 bumpers and putting your phone down (prevention). Not getting a new roof paid for by insurance for weather "damage" when the roofing company knows it's more wear and tear, having leak detectors installed on your mostly vacant vacation home, firewising your large property in the woods, etc (mitigation). Risk transfer is mostly contractual.

I live in a fairly risk free area close to a fire station and try to maintain my home. Do I want my premiums to go up because someone has a beautiful second home in a fire prone area without a staffed responding fire department nearby? I'm all for spreading risk but the question has to be what is fair. I'd be willing to pay more for that risk but I would like some fractional time in their vacation home in exchange.

There are plenty of good insurance companies that don't advertise much if at all. My experience is the companies that don't advertise generally pay claims with less hassle and have broader coverage contracts. I send my insurance premiums to those companies.

Edit-Probably a good reason for an insurance thread and let real estate be real estate.

this is a great post *except* you never do anything but transfer financial risk. IT goes somewhere. And in modern times the ultimate endpoint is the gubmint


and people blame bumpers but there’s also the cast subframes on new cars esp EVs that are uneconomical to repair.

[Conundrum]

this is a great post *except* you never do anything but transfer financial risk. IT goes somewhere. And in modern times the ultimate endpoint is the gubmint

Thanks. I guess the term "finance it" is nuanced. If it were a true transfer, there wouldn't be a profit margin the insurance companies build in. I guess call it a transfer fee.

I do think a lot more than I should about the insurance industry. Apparently has some pretty smart actuaries and economists working for insurance companies. While the profits can be fat, those insurance companies are going to feel a pinch moving forward. They all buy reinsurance on their risk from a handful of global companies. Eventually those companies will fly a finger at the annual treaty negotiations when they can't charge enough to cover what they're looking at with inflation and climate risk. I believe the term too big to fail will come around again so you're correct, gubmint takes the risk another time. And highly comped execs will skate with bonuses again. We're already seeing insurance companies pull out of CA and FL. Admitted carriers are pulling out of most areas with brushfire scores over 75 meaning that people in the west will be insuring in the surplus markets which have no state backing in the event of insurance company default. What if the admitted markets had to stay and what would the threshold be for affordable prices for risk spread even with profit taken out? Probably less than they could charge for all but a few to be able to pay. This is going to disrupt the lending and sales industry around real estate because you need some type of collateral (an insurance policy most of the time) to satisfy loan agreements. No loans, not as many homes sold. Insurance actuaries forecast losses based on age and type of construction. Reaching the end of effective use is coming up on a lot of property. Lead and galvanized pipes leak at joints, rot in trusses, old leaky roofs, site drainage, aluminum wiring and other fire hazards in electrical systems, people leveraged and not being able to afford upkeep, doing work themselves without knowledge so probably not to code, all sorts of aging property issues that become predictable losses. Nuclear verdicts, monocoque car frames that will total an $80k car in an accident that was purchased on a 7 or 8 year note.

Really uplifting outlook trying to financially protect our current lifestyle if you're not in the top echelon of wealth. If you're those guys, time to buy some assets.

Seperation of rich and poor gets bigger quick.

Financial downgradings are hitting insurers and picking up. Worth keeping an eye on.

Pretty uplifting stuff.

Edit...or maybe the weather calms its shit down and stuff becomes cheaper and easier to repair or replace.

[Conundrum]

I probably sound like an insurance schill and if that's your take, I get it.

Looking at the bigger picture, about 15-20 years ago private equity money flew to the insurance world. Those folks usually take a 7 to 10 year ride and move to the next best thing because usually the richest folks know where to put money. PE investment in insurance has slowed and is more focused on agency vs insurer and has been for a bit. Insurers are starting to not perform. Sure, if you follow the tickers, they seem to be doing fine but the privately held agencies are doing better. Agencies are typically paid a percentage of premium. Rates rise, agency income goes with it. Actually wondering when something has to give on agency comp side.

There is a ton of M&A going on in the agency space. Some agencies more capitalized and better at it than others. Why do you think the mom & pop agencies on main street now have big national signs on the building? ROI on PE money in agency space is outperforming most other investments in the PE funds. This will continue for awhile. When you see the big privately held agencies IPO, know the gig is up.

Due to the size of the agency firms, profitability is in the larger commercial clients but is competitive to get the business. Also due to their size, they get better access, exclusivity, and contingent bonuses from the insurance companies. The problem with this is most end users in the transactional and D2C space, people buying insurance for home and auto primarily, won't get either access to the most knowledgable people with access to the best markets because those people are working on larger premium clients (personal lines and small business units operate a lot different than large commercial and high net worth), or the knowledgable agents who refused to sell out won't have access to the key insurance companies because they can't push the volume like a big house can. There are exceptions to this but true more often than not. Or the home and auto shoppers can go buy online themselves and try to figure out insurance contracts because those are easy to decipher. More to it especially on the home and auto side.

For most of us, it's about following the money and figuring out the best path forward knowing that you didn't write the rules but you still have to play.

[yeahman]

Interesting stuff. Appreciate your perspective.

We've all been wondering what's going to trigger the next crash in the housing market. Sounds like unaffordable insurance premiums and/or uninsurable properties is a strong contender.

[Conundrum]

I know a bit about insurance but not a ton in real estate. I would think that a lot of the problem will lie on the supply side. Much of the high risk property is either old and the land is valuable, neither is valuable, rural with lower incomes, or recreation and view shed based. Basically, common folks won't be able to insure things of value like mountain homes will have to cash out but will create pressure on urban and feeder areas. Older properties in cool locations will gentrify but not by the middle class. Upper end neighborhoods will have infill of nice homes and decent land will get high density multifamily. Both will require money and if you don't have a bunch of it, your single family home dreams will become a shared wall. Rural people without a view will just be fucked. If they have enough acres, they may be able to salvage something from institutional ag investors if there's water around. Basically it will be a balancing act of what is affordable to insure with the demand placed on those properties. Or rent (insurance costs will be passed on to you though). Hard to predict the magnitude here but it is at least a conversation point.

What a lot of people miss is that they look at an insurance company's profits globally. They don't look at line of business and it's not easy to make a buck in personal lines-home and auto. The market seems to have plateaued in many business segments and is softening slightly. Heavy property and auto risk is still on watch though and could go either way barring any major climate related disasters.

There's so many macro issues affecting housing, insurance costs certainly are not the lynch pin but is in the chain of trouble to come.

My advice if I were shopping for home insurance right now is find a reputable broker that will return calls before and after selling you something. Prior to meeting, I would talk with a contractor prior to meeting the agent about rebuild costs and don't fuck around with insuring to value, just do it, have ariel pics ready even if just google earth and map closest fire dept and response time, if the home is older than 20 years, pay for a plumbing and electrical inspection, and have any updates ready to prove with receipts, consider a roof replacement or at least have a bid ready if older than 20 years, have your exterior tidy with landscaping trimmed away from the envelope with some current pics you can email, be ready to explain if google street view pics or zillow/redfin type pics don't paint your house in a good light, if your credit fluctuates, shop insurance at the peak, have all current policies ready and consider higher deductibles. The good agents with good markets are busy and the profit isn't huge on single family home policies. Make it easy for them without a bunch of back and forth questions and they should take care of you. Also, don't beat them up if they don't shop the policy every year. Used to benefit you to do so. With all the churn and turmoil (location dependent of course), settle in for 3 or more years even with some moderate premium increases. Capacity is a big term right now. Due to reinsurance, insurance companies are running into capacity issues meaning they can only insure so much value in a geographic area. They will cap business in a radius. Sometimes when you give a policy up to save short term savings, the new cheaper company will have come into a market buying up business with excess capacity and then figure out they were underpriced and give a big increase second year. Might not be able to jump back to where you were.

Profit in transactional business (single family home/auto) is built on transaction efficiency meaning moving fast. Finding someone who will actually review coverages with you is key and hopefully they can access the markets you need. Treat the humans with a bit of respect-things are not like they used to be. If you're a pain, they've got a stack of applications on their desk just like yours to work on. Be an easy one so they don't move yours to the bottom. Next stop is calling 1 800 Geico and I can guarantee the person picking up the phone does not give a fuck nor has a ton of experience. And they work for Geico so that is what they'll sell you.

[Name Redacted]

companies are dropping any complex with a total value of over 50 million
I know lots about this shit its crazy whats going on

but like someone else said here shit box condos that no one has done the slightest updates to are a dime a dozen even in summit county

every time I goto bid or look at a condo hoa project one I ask them about money and if they are looking for the cheapest number (this is 75% of them) and if I do an estimate I clearly put at the top this is dangerous someone is going to die or this needs to be fixed asap or you have a couple years but in better terms and use big words that I get from gramerly

The building I am talking about, the insurance agency found that some of the building had aluminum wiring. That was enough to drop em. Upkeep has been routine. Lots of newly updated stuff like railings, roof, pool, hot tub, etc. but apparently wiring in a few units hadnt been updated.

Glad i am in a sfh when i hear about this stuff. Although i think we are due for a new roof sometime soon.

[smmokan]

Glad i am in a sfh when i hear about this stuff. Although i think we are due for a new roof sometime soon.

Just wait for the next hail storm to come through, that’s what everyone around here does (outside Boulder). The roofers come around and convince all the home owners they need a new roof and it’s “free”… and then the following year all our premiums get jacked up to cover the cost of those roofs. I think 3/4 of our town got a new roof in the last 12 months after some pretty minor storms last spring.

[Name Redacted]

Just wait for the next hail storm to come through, that’s what everyone around here does (outside Boulder). The roofers come around and convince all the home owners they need a new roof and it’s “free”… and then the following year all our premiums get jacked up to cover the cost of those roofs. I think 3/4 of our town got a new roof in the last 12 months after some pretty minor storms last spring.

We are too high for hail.

[Vt-Freeheel]

Don't be lured in by low HOA fees or it might bite you in the ass

50-million-assessment

[schuss]

this is a great post *except* you never do anything but transfer financial risk. IT goes somewhere. And in modern times the ultimate endpoint is the gubmint


and people blame bumpers but there’s also the cast subframes on new cars esp EVs that are uneconomical to repair.

I most cases it's the industry that takes the hit as insurance companies are subject to very strict reserve and fiduciary requirements, so if an insurer starts to fail in a state, the state will take the policies and just assign them to other carriers to deal with.
Only place gov puts money in is for TRIA (terrorist ever nt damage) backstopping (as terrorism is not something that can be modeled well with traditional techniques so the alternative would be that they're uncovered events.
Other one is NFIP (flood) which basically every insurance pro will tell you is a dumb handout given they don't have the same reserve restrictions nor the ability to forbid coverage on high risk properties.

Things like FAIR plan in CA are basically an additional tax to do business in the state as it comes entirely out of insurance company coffers.

Also, if you're mad about any insurance stupidity in your state, go talk to the state insurance commissioner as they set most rules and policies as well as can make life hell for an insurer. Most also don't give a flying f what insurers think as everyone hates insurance companies.

[AdironRider]

Don't be lured in by low HOA fees or it might bite you in the ass

50-million-assessment

I don't really see this as an HOA fee issue.

Did these people really expect to not have to do maintenance on a 40+ year old building? This seems to be a detached from reality issue.

[Foggy_Goggles]

Did these people really expect to not have to do maintenance on a 40+ year old building? This seems to be a detached from reality issue.

....and this is basically many HOAs and the insurance issue in a nut shell. Frequently there is shit tons of deference maintenance, no accounting/depreciation schedule, no due diligence by buyers/realtors/inspector or either the physical condition of the common elements or the financials and so on.

As a contractor, I've worked with a large condo complex for more than ten years. They settled a lawsuit with the builder/developer for construction deficiencies and proceeded to basically do nothing and piss the money away. The BOD in charge of that dumpster fire, put lipstick on the pig and sold.

And then people wonder why the insurers want to run away. If the roof hasn't been replaced in 30 years, there are water infiltration issues and the 3rd floor deck railing are rotten how to you price that?

[Conundrum]

I most cases it's the industry that takes the hit as insurance companies are subject to very strict reserve and fiduciary requirements, so if an insurer starts to fail in a state, the state will take the policies and just assign them to other carriers to deal with.
Only place gov puts money in is for TRIA (terrorist ever nt damage) backstopping (as terrorism is not something that can be modeled well with traditional techniques so the alternative would be that they're uncovered events.
Other one is NFIP (flood) which basically every insurance pro will tell you is a dumb handout given they don't have the same reserve restrictions nor the ability to forbid coverage on high risk properties.

Things like FAIR plan in CA are basically an additional tax to do business in the state as it comes entirely out of insurance company coffers.

Also, if you're mad about any insurance stupidity in your state, go talk to the state insurance commissioner as they set most rules and policies as well as can make life hell for an insurer. Most also don't give a flying f what insurers think as everyone hates insurance companies.

FEMA?

https://www.fema.gov/fact-sheet/indi...eholds-program