Uninsurable homes sell for full cash at a deep discount

There is an incredibly risky two-way trend in the real estate market. Insurance companies refuse to cover properties because they are located in areas with severe weather or because the housing stock is old. And banks won’t give you a mortgage because of the same risk. The result is a more fragmented housing market – traditional homes that can be insured and mortgaged, and a burgeoning segment of properties that can only be sold for cash and at a deep discount, if at all.

About $1.6 trillion in uninsured home property value was at risk three years ago and 6.1 million homeowners were uninsured, a report released this year by the Consumer Federation of America concluded. It’s only gotten worse since then, even if this is the latest data available. And yet, such houses can still be sold. Conformable Axios“uninsurable homes are still changing hands in the housing market.” You can’t take out a mortgage on them, but you can pay all cash and possibly get a big discount, the publication reported.

I don’t need to tell you how risky it is to have an uninsured property. It may be less if you’re a billionaire who wants an amazing view and has cash to burn. But for typical Americans living in California, Florida, Texas or other states vulnerable to severe weather, not so much. Most of the time, these are low-value homes and low-income households that are uninsured. They may choose to go without insurance if they can’t afford the rapidly rising premiums or if they simply can’t find an insurer that will cover them. Even so, places like California and Florida have their own forms of coverage of last resort, whether it’s Plan FAIR for the former and Citizens for the latter.

What you need to know is that there is an insurance crisis going on all over the country, especially in those states mentioned above. In California, property insurers limit the number of policies they write or refuse to write new ones. In Florida, several home insurers have fled the state. Insurance issues have made it difficult for homeowners and homebuyers who are dealing with skyrocketing mortgage rates and prices.

The president of CoreLogic’s global insurance solutions business, Garret Gray, once told me that his house in a Los Angeles canyon is almost uninsurable. “It has a very bad CoreLogic fire score,” he said. He almost backed out of the deal before making some changes to make the house insurable. The thing is, some people might not give up on the deal. Instead, they might try to get a better deal from the seller.

Then there’s Jason Damm, an assistant professor of the professional practice of finance at the University of Miami and a homeowner in the city. He once told me that after he renewed his insurance earlier that year, his premium went up. That was before the insurer sent him notice that he was moving out of state and his policy was canceled. At the time, he had no insurance and hadn’t decided what to do because of how expensive and difficult it was to find coverage. “I don’t have home insurance, which is pretty dangerous,” Damm previously said. “I searched. It’s very expensive so I’m trying to decide what to do. It’s a huge problem. I mean, I don’t know what I’m going to do with it, if I’m going to try to find a policy or just go without insurance.”

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It’s not just him. Miami happens to have the highest share of uninsured homeowners at about 15%, and its home values ​​haven’t dropped at all. All the while, the city is extremely vulnerable to climate-related events that cost the entire country billions of dollars a year. So it looks like people are still buying and selling homes in Miami, insured or uninsured.

This story was originally featured on Fortune.com