How Lapses of the National Flood Insurance Program Affect Home Sales

Bobby and Lindsey
Bobby and Lindsey
Published on August 22, 2017

While The National Flood Insurance Program’s (NFIP) authority to write flood insurance expires at the end of next month, NAR conducted an analysis to estimate the impact of NFIP lapses on home sales.  Based on the latest available data, NAR has put together an estimate of the number of home sale closings that will be delayed or cancelled if there will be a lapse of the program after September 30.

What is the NFIP?

The NFIP is a program created by Congress in 1968. The program enables property owners in participating communities to purchase insurance protection against losses from flooding, and requires flood insurance for all loans or lines of credit that are secured by existing buildings, manufactured homes, or buildings under construction that are located in a community that participates in the NFIP. As of May 2017, the program insured about 5 million homes.

The NFIP was last up for reauthorization in 2012. After a two-month shutdown[1], the Biggert-Waters Flood Insurance Reform Act of 2012 extended the National Flood Insurance Program’s authority through Sept. 30, 2017. NAR estimated that 80,000 home sales in total were delayed or cancelled because of the two-month shutdown in the period 2008-2012.

The Data: How We Calculated the Numbers

The ultimate goal of this analysis is to estimate the number of home sales affected by a NFIP lapse.

First, we calculated the share of housing units that are located in 100-year floodplains called Special Flood Hazard Areas (SFHAs). The Federal Emergency Management Agency (FEMA) publishes the National Flood Hazard Layer (NFHL)[2], which enables us to determine the flood zone, base flood elevation, and floodway status for a particular location. Meanwhile, the 2010 Decennial Census includes the housing units counts for particular locations. Overlaying these two datasets, we estimated the share of housing units that lay in a 100-year floodplain.

NAR releases the number of existing home sales by region, while Census provides information about the number of new home sales. Applying the share of housing units in a 100-year floodplain by location to new and existing home sales, NAR estimated the number of home sales affected by a NFIP lapse.

Highlights & Main Findings

Nationwide, it is estimated that each day that NFIP lapses, 1,223 home sale closings will be delayed or cancelled nationwide. On a monthly basis, NAR estimates that each lapse would jeopardize 36,700 closings across the nation.

While nearly 9.6 million homes[3] (7.2 percent of the total housing units in the United States) are located in FEMA’s 100-year floodplains, some regions have a larger share of the housing stock located in SFHAs. Thus, the impact of a lapse on the housing is expected to be larger in regions with a higher share of homes in flood zones. As data shows, the majority of delays or cancellations in home closings is expected to occur in the South, where 11.6 percent of the total housing is located in a 100-year floodplain.

The visualization below shows the impact of a NFIP’s lapse on home sales by region:



[1] The total shutdown period lasted two months. Between 2008 and 2012, Congress passed 18 short-term extensions while there were tiny gaps between extensions.

[2] National Flood Hazard Layer (NFHL) last updated in March 2017.

[3] Based on the number of housing units from the 2011-2015 American Community Survey (ACS).

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