New California homeowners could encounter roadblocks when looking for home insurance after news broke that Allstate and State Farm will be pulling out of the California home insurance market.

It’s unclear how this news will affect the California real estate market overall, but many residents already struggle to afford the six- and seven-figure home prices in the Golden State, without even accounting for monthly expenses.

“It would be more expensive to own a home since insurance is a part of your monthly budget,” Daryl Fairweather, chief economist at Redfin, said. “And if there are fewer insurers, then the insurers left behind will be able to command a higher price.”

While California doesn’t require homeowners to have insurance, many mortgage lenders do. With fewer insurance companies willing to insure homes in high-risk areas, such as fire prone locations, more people won’t be able to purchase homes at all.

According to Fairweather, the only people who could afford these “high-risk” homes would be those who could pay for it with cash or those who obtained outside financing, such as a loan from a family member.

A June report from Redfin showed that one-third of U.S. homeowners made all-cash purchases in April, a 30.7% increase from 2022. Experts indicated that the rate of all-cash home purchases increased since high mortgage rates have deterred other buyers who would need a loan to purchase a home.

Fairweather said that these numbers indicate that two-thirds of potential home buyers won’t be able to purchase a home should these trends continue.

Allstate and State Farm decided to stop accepting insurance applications for all business and personal property in California primarily due to high costs.

“We paused new homeowners, condo and commercial insurance policies in California last year so we can continue to protect current customers,” a company representative from Allstate told KTLA. “The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes, and higher reinsurance premiums.”

State Farm shared a similar announcement when news broke that the company wouldn’t accept new home insurance applications. However, California homeowners with a policy with either of these companies won’t be affected. For now, current California home policies will be able to be renewed, according to company officials.

When California experienced horrendous wildfires in 2017 and 2018, insurance coverage for “high-risk” homes became challenging to find, according to a 2019 California Department of Insurance report.

California Insurance Commissioner Ricardo Lara announced new insurance protections in effect for the summer wildfire season that increases payouts and evacuation benefits for wildfire survivors in 2021. The new protections would mean “larger payouts for some claims and less red tape from insurance companies,” according to Lara.

Last year, the commissioner enforced the new insurance pricing regulation under the Safer from Wildfires framework, requiring insurance companies to provide discounts to consumers who follow safety measures such as upgraded roofs and windows to prevent wildfire risks.

The new regulation aims to reduce insurance costs and create consumer risk rating transparency.

While the news about State Farm and Allstate is still relatively new, experts at Redfin won’t be surprised if reports about new homeowners being unable to secure home insurance come out later in the year.

“So especially with the way the housing market is right now, I think it’s going to take a little bit for us to get those stories, but I definitely would anticipate it becomes a bigger conversation this summer, but it’s just a little bit early right now,” a Redfin official said.