Homeowners insurance quotes are interrelated to the housing industry. Quotes are directly tied to the value of a house, but they are also impacted by the overall housing market. Because of this, quotes will vary depending on the economy, status of the housing industry, and the predictions about the future of the housing market.
The main reason why homeowners insurance quotes have impacted the housing industry is because they are directly related to a house’s cost. The higher the value of a home, the more costly it will be to repair should damage occur, or replace should the house be destroyed. Insurance companies are a business who, like most businesses, would rather save than spend money. Therefore, to ensure that they will be out as little as possible if a home should be damaged, they will increase the cost of their coverage. Insurance quotes, therefore, will increase in accordance with increases in housing costs.
Unfortunately, however, homeowners insurance quotes will not decrease when the cost of a house declines. This is because the insurance company must still pay for the value of the house when it was purchased, again to ensure that the house has proper coverage and to reduce the amount of potential loss to the company. Therefore, while insurance quotes will increase, they will rarely decrease unless the house is being sold to a new owner. Even in that case, though, because the property may be valued the same by the state, quotes may remain the same.
Similarly, while the cost of an existing house may decline, the cost of land usually does not. The cost of land, whether developed or undeveloped, often does not change much, despite the state of the housing industry. Additionally, the same potential threats to a house, such as an earthquake or hurricane, remain in place regardless of the housing market. Insurance quotes, therefore, must remain the same to protect against these potential sources of destruction.
If a quote remains the same, it could potentially exclude a large number of potential purchasers. While a purchaser may be able to afford the reduced cost of the home and be willing to wait out bank approval in a short-sale or foreclosure, he or she might not be able to afford the stagnant insurance quote. Here, the sale may fall through or an offer never be made in the first place. In this, the housing industry and insurance companies may see a decrease in sales.
Homeowners insurance quotes and the housing industry have a cyclical and mutual impact on each other; what happens in one affects how the other operates. It might be difficult for either one to separate and recover after an economic decline.