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Convergence; when demographics & Economics meet

Everyone in the UK has heard of the cheap housing available on the continent.  You can buy a house for a pound in Italy and Portugal.  In 1987, Japanese homebuyers contemplated 100-year multi-generational mortgages because house prices had risen to unfathomable levels.  Today, a house in the Japanese countryside can be yours for a few hundred dollars.  Demographics explain the cheap housing; an aging and shrinking population requires less housing

Over the past several years Florida has faced several problems, including weather and the state's extremely litigiousness.  The home insurance market is extremely regulated, far more than almost any other financial product, the reason is that payoffs are rare and are clustered.  Therefore, insurance companies have to demonstrate certain financial strength.  In Florida, over the past several years total premiums paid were substantially lower than the insurance payouts (weather & lawsuits).  In the past two years, large insurance companies have exited Florida.  Since then insurance availability has plummeted and premiums have skyrocketed. 

Florida's massive expansion began in the early 1980s.  20 years later when the baby boomers began retiring Florida was the go-to state.  The children of baby boomers are noticing that keeping mom's condo in Bocca is now unaffordable because of rising insurance premiums.  For those who bought in the last 15 years, mortgages require insurance coverage.  Cost and availability problems started in 2020 and have only worsened. Until 2022 the Federal government offered some flooding insurance but in the last Federal budget, this service was no longer offered.

The scale of the panic became evident when a study published the number of homeowners who were highly motivated to sell.  As of 2024, there were 500 New York residents highly motivated sellers, 1,200 in California, and 4,700 in Florida.  NY and FL have similar populations, CA has about twice as many.

Two of the three forces mentioned above are unstoppable; baby boomers are starting to die off, and the weather is expected to get worse, with more coastal flooding.  The only aspect that could provide some relief is the insurance market, but politicians have done everything they could to make things worse.   

As a market analyst, this is a classic short market situation.  My recommendation is if you fancy a place in Bocca, rent, don't buy.  

Note:  This story began after a conversation with an American friend.  He used to own five condo towers near Fort Lauderdale.  When the 2022 federal government budget was passed, the next day he sold all five buildings to a Real estate investment Trust.  He said that the Federal government's flood insurance was the only reason his investment made sense.  


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