Lapses Of The National Flood Insurance Program Jeopardize Home Sales

The National Flood Insurance Program (NFIP) is essential to successfully completing half a million home sales annually. When NFIP lapsed from May 31 to July 2 in 2010, the REALTORS® Confidence Index showed 6 percent of REALTORS® had at least one delayed or cancelled home sale, amounting to 46,886 transactions during that 33-day period or 1,421 per day. Because the survey was conducted in June, one of the busiest home-sales months, and the first time homebuyer tax credit influenced the 2010 June activity, the National Association of REALTORS® (NAR) conducted further analysis to evaluate the survey result’s sensitivity; NAR found that its initial estimate was robust to additional analysis.

Based on more generalized analysis, NAR estimates that each day that NFIP lapses results in the delay or cancellation of 1,332 home sale closings nationwide. This provides additional support for NAR’s earlier estimate that each lapse would jeopardize closings across the nation on the order of 40,000 per month. To arrive at the refined estimate, NAR calculated the average sales throughout the year using the 2008 through 2010 sales activity as the basis. Nationwide, about 8 percent of the housing units, or over 10 million homes, are located in FEMA’s 100-year floodplains, called Special Flood Hazard Areas (SFHAs). Some regions have a larger share of the housing stock located in SFHAs and account for a greater share of the home sales activity; thus we aggregated at the regional level before reducing the combined annual figure to its daily equivalent. The following table summarizes the estimated daily impact of NFIP lapses on home sales by Census region.