The government shutdown that began last week could be preventing would-be buyers of coastal property from closing on their new home.
That’s because the National Flood Insurance Program, which is managed by the Federal Emergency Management Agency, expired on Sept. 30 when Congress failed to approve funding for government operations.
The federal program now can’t issue new flood insurance policies or make changes to existing ones until the government shutdown is over, according to the National Association of Realtors. Existing National Flood Insurance Program policies, however, will remain in effect until their expiration date and claims will continue to be paid as long as FEMA has funds.
This is perhaps most problematic for buyers attempting to close on a property in a high-risk flood zone, as mortgage lenders may require buyers to purchase a flood policy as a condition of the loan. Buyers who rely on the National Flood Insurance Program are stuck in limbo until the government shutdown is over, said Kara Bickford, an Augusta-based associate broker at Coldwell Banker.
The shutdown comes at a time when the housing market is becoming more balanced and prospective buyers are benefiting from an increase in inventory while interest rates on mortgages are lowering, Fran Riley, a Belfast-based real estate agent for United Realty, said.
Pickford estimated less than 1% of homes in Maine need or have flood insurance, but those that do tend to be among the state’s more expensive properties or in the region’s most desirable areas. These include coastal areas of southern and midcoast Maine that are especially popular with tourists.
More homeowners may also be pursuing flood insurance as coastal flooding and storm surge become more common due to climate change and subsequent sea level rise.
The need for flood protection also extends to many commercial properties along the coastline, including marinas that support Maine’s fishing industries that play a major role in sporting the region’s economy.
While it’s possible to get flood insurance through a private company, Cale Pickford, an agent at the Allen Agency who specializes in flood insurance, said it’s an “imperfect solution.”
That’s because private flood insurance companies are often more expensive and more selective about who they give coverage to, Pickford said. For instance, a private company may not offer coverage to someone whose home is in a high-risk flood zone.
“They’re not going to write a policy on something that they think is a guaranteed losing bet,” Pickford said. “If they do write it and think it’s high-risk, they’re going to charge a lot more than the National Flood Insurance Program otherwise would.”
By comparison, the National Flood Insurance Program is heavily subsidized by the federal government, so anyone who needs coverage can have it, Pickford said.
Additionally, homeowners can’t ditch the private policy and return to the National Flood Insurance Program once the government reopens.
“You’ll be on the hook for at least 25% of that cost, or perhaps even 100%,” Pickford said.
While it’s still too early to tell how the government shutdown could further affect the nation’s housing market, Mary Libby, broker owner at Mary Libby Living Real Estate in Cape Elizabeth, said it could eventually hamper government loans, appraisals, underwriting or the IRS.
“It hasn’t been long enough for us to see the impact, so it will depend on how long this lasts,” Libby said. “Having the government shut down for a long period of time isn’t going to help anyone.”
