👋👋 Good morning real estate watchers! Today, we are going to talk about how one expert says, and this is a real quote: 'As a society, we just like to live in high-risk areas.' Oh, do we? Do we like it? Because I think what he means is: 'As a society, we're spectacularly bad at risk assessment and also Miami has really good brunch.' One in six Americans live in a high-wildfire-risk area! That's the same odds as dying in a plane crash if planes crashed all the time. Which, fun fact, they don't!

But first, here’s what we’ve been paying attention to this week…

1️⃣ Rate Freeze Frame: Mortgage rates are hovering near 6% and barely budging, even with another Fed rate cut expected next week. Experts say any impact will be mild, with affordability improving only slightly in 2026 as incomes (finally) start outrunning home prices. (HW)

2️⃣ Lend & Pretend: Banks are rushing back into CRE lending (up 85% year-over-year) even as delinquencies sit near decade highs and “extend-and-pretend” keeps trouble buried under the balance-sheet rug. Multifamily is leading the rebound, while office is tiptoeing back into favor. However, nearly $1T in maturing debt means the real stress test is still ahead. (CRE Daily)

3️⃣ Cold Feet Crisis: Roughly 53,000 home sales (15% of contracts) fell through in October as buyers balked at high costs, economic jitters, and an oversupplied market that makes walking away feel consequence-free. With sellers losing leverage and buyers knowing they can easily find alternatives, cancellation rates remain significantly higher than pre-pandemic norms. (Redfin)

4️⃣ Taxed to the Max: U.S. homeowners paid an average of $4,271 in property taxes in 2024, with northeastern states (especially New Jersey and New York) shelling out the highest bills, while West Virginia remained the cheapest. For the first time, no state averaged under $1,000, highlighting widening geographic tax disparities tied to home values. (NAHB)

5️⃣ Lukewarm Lift-Off: Zillow expects 2026 to bring a mildly warmer housing market, with home values rising 1.2%, sales ticking up 4.3%, and mortgage rates staying just above 6%. Buyers should get a bit more breathing room while sellers enjoy steadier demand, and renters may finally see meaningful affordability relief. (Zillow)

TOP STORY

Ron Myers has encountered some creative deal-killers during his years of selling Florida real estate. Surprise liens. Cold feet. In-laws with opinions. But lately, a new culprit has been torpedoing perfectly good transactions: the insurance quote.

"I've personally seen buyers lose their loan approvals after they got their insurance quotes," says Myers, of Ron Buys Florida Homes. "They are fully qualified before, but once that monthly premium gets added in, it pushes their debt-to-income ratio too high and the lender pulls the plug."

Welcome to America's new housing crisis, where the monthly insurance bill is increasingly the difference between homeownership and renting. And it's about to get worse.

U.S. homeowners’ insurance premiums are expected to surge 8% in 2026, followed by another 8% in 2027, a compounding 16% increase that will push coverage costs to unprecedented levels, according to projections from Cotality, a real estate analytics firm.

"The hot potato of insurance premiums—these have been raising dramatically over the last few years," John Rogers, Cotality's chief data and analytics officer, told attendees at ResiDay, an annual real estate conference.

Insurance has already climbed to 9% of the typical U.S. homeowner's payment—"the highest average on record of a person's outlay in terms of principal, interest, property tax, and insurance premiums," Rogers noted.

In some regions, rates have exploded by as much as 62%, says Anand Srinivasan, Cotality's head of research and development. Translation: That dream home in Hurricane Alley just came with a nightmare PITI calculation.

Three forces are converging to drive premiums skyward, and they're not letting up anytime soon.

First, construction costs have surged 44% since the pandemic, according to Srinivasan. "The supply chain is causing some pressures, aluminum being the top one," Rogers explained. "That's risen 10 percent year on year, most of it coming from Canada and China. And there's an amplification effect with some of the tariffs happening between countries right now."

Second, Mother Nature is billing us for decades of climate complacency. "12% of the residential housing stock is at high-risk to a hazard or peril—think about wildfires, winter storms, hail," said Rogers. "That's equivalent to $4.3 trillion dollars worth of reconstruction cost."

Third (and here's where human nature gets uncomfortable), we're collectively terrible at risk assessment. "As a society, we just like to live in high-risk areas," Rogers said, with admirable understatement. "One in six of us live in a high-wildfire-risk area."

Srinivasan puts it more bluntly: "More people are flocking to places with extreme weather conditions, like areas prone to flood or fire, or Florida and Hurricane Alley which has become more highly populated than ever before."

So we're building more expensive homes in riskier places while climate disasters multiply. What could go wrong?

For real estate investors and property markets, the fallout is already reshaping the landscape.

According to a recent Realtor.com survey, 30% of homebuyers have completely abandoned their original geographic search areas due to insurance challenges, while another 30% have expanded their search. Nearly a quarter have overhauled their entire homebuying strategy.

"An unexpected increase in the cost of homeowners’ insurance can catch existing homeowners off guard and can also discourage potential buyers who are trying to estimate their monthly housing expenses," says Hannah Jones, senior economic research analyst at Realtor.com. "In both cases, climbing insurance costs can contribute to weaker buyer demand and more fragile housing stability in already vulnerable markets."

The pain is particularly acute in states like Louisiana and Florida, Jones notes, "where climate-related risks are driving steep annual increases." And, some insurance companies are just pulling out of high-risk markets faster than I pull out of conversations about cryptocurrency.

Denise Supplee, a real estate agent in Doylestown, Pennsylvania, has watched the Florida meltdown from afar. "I have friends and family in Florida dealing with insurance hikes of 30% or more," she says. "One ended up moving out of state because the premiums became impossible to justify. Another is preparing to list their home in part because the cost of staying—between taxes, insurance, and ongoing increases—just does not make financial sense."

Faced with spiraling costs, Americans are increasingly choosing what was once unthinkable: going bare. One in seven homes is currently uninsured.

That's roughly 14% of American homes just raw-dogging disaster risk. These people are out here with no coverage like they're playing financial Russian roulette, except the gun is fully loaded and pointed at a tinderbox in Hurricane Alley.

And 58% of homeowners surveyed by Realtor.com said they'd drop coverage if prices climbed too high. That's roughly 75% of Americans now worried their homeowners’ insurance could soon become unaffordable, a remarkable statistic for what used to be a routine household expense, like electricity or water.

For real estate investors, this creates a perilous calculation. Properties in high-risk areas may appear attractively priced, but the total cost of ownership increasingly defies traditional investment metrics. Insurance isn't just eating into cash flow, it's fundamentally repricing entire markets.

There is, at least, a glimmer of hope in the analytics revolution.

Rogers outlined how Cotality is using AI-driven aerial imagery to assess the resilience factors of every California home, including roof materials, closed eaves, and setbacks. This generates a home-specific resilience score. "We send that signal to the insurer, the insurer reaches out, and we can lower insurance premiums by over 20%," Rogers said.

After the devastating 2018 Paradise fire, Cotality helped design a rebuilding blueprint featuring homes built to IBHS standards with strategic firebreaks that could reduce wildfire risk by up to 75% and slash insurance premiums by over 50%.

But these are long-term solutions to an immediate crisis. For investors eyeing properties in Florida, California, or Louisiana, the message is clear: Factor insurance into your models aggressively, or prepare to be blindsided.

The hot potato Rogers described is only getting hotter. And unlike in childhood games, nobody wants to be left holding it when the music stops.