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Federal Reserve Chairman Jerome Powell warned during a congressional testimony on Tuesday that the ongoing crisis in the insurance industry could lead to significant mortgage accessibility issues in certain regions of the United States over the next 10 to 15 years. Powell noted that banks and insurers are increasingly withdrawing from high-risk areas, particularly coastal and fire-prone regions, which could leave potential homebuyers without necessary mortgage options.
As climate change intensifies natural disasters, insurers have reported major losses, prompting many to cancel policies. For instance, State Farm recently canceled thousands of policies in the Pacific Palisades area of Los Angeles before a significant wildfire event. This trend means that prospective homebuyers are turning to state-sponsored insurers of last resort, which often offer higher premiums and limited coverage.
Powell also addressed housing affordability challenges, explaining that while interest rate normalization might alleviate some short-term issues, the fundamental problem lies in the lack of housing supply. He emphasized that many affordability issues are beyond the Federal Reserve's control.