Insurance Crisis Impacts Mortgage Accessibility in Future Decades
Federal Reserve Chairman Jerome Powell warns of potential mortgage scarcity in certain regions due to an escalating insurance crisis. Insurers' withdrawal from high-risk areas, particularly coastal and fire-prone zones, is exacerbating the issue.
Climate change-intensified natural disasters have led to widespread policy cancellations by insurers, resulting in substantial losses. Mortgage lenders typically require homeowners insurance, leaving prospective buyers with limited options and facing higher premiums and reduced coverage through state-designed insurers of last resort.
While interest rate normalization may ease affordability in the long term, Powell emphasizes that the underlying housing supply shortage remains outside the Fed's control. Falling rates may not necessarily curb housing inflation due to increased demand.
Powell acknowledges the role of Fannie Mae and Freddie Mac in suppressing mortgage rates but suggests that their release from conservatorship is a matter for congressional debate. He notes the potential benefits of returning housing finance to the private sector over the long term.