Lockton Re has released a new report analyzing regional housing market trends in Florida, Texas and California, amid heightened media coverage of affordability concerns and falling home prices.
Sean Hannah (pictured above left), co-leader of mortgage and structured credit at Lockton Re, said that while regional housing downturns have historically been tied to localized drivers, their isolated nature generally limits broader credit exposure for diversified mortgage portfolios.
The three states examined in the report represent over 25% of the US housing market and, according to Lockton Re, merit closer scrutiny due to their size and media attention.
Florida, in particular, is flagged as showing signs of market strain due to a combination of rapid home price appreciation, rising insurance costs, and declining affordability. These factors have led to reduced demand and a buildup in housing inventory, which has reached a 10-year high.
Joe Koebele (pictured above right), co-leader of mortgage and structured credit, said that although there are areas of concern, the underlying data does not indicate a looming housing crisis. He said affordability challenges and mortgage rates are affecting supply levels, but the market is expected to remain stable at current volumes.
The report notes that national housing trends have remained relatively steady over the past nine months, with the months of supply settling slightly below pre-pandemic levels. While national indicators appear stable, localized price declines in Florida, Texas and California have sparked debate over whether these markets are under threat or simply reacting to cyclical factors.
California, which holds the largest share of single-family housing exposure among government-sponsored enterprises (GSEs) and U.S. mortgage insurers (MIs), has experienced some negative headlines tied to population outflows and price reductions in specific areas.
However, Lockton Re’s analysis suggests that supply, demand and affordability dynamics in the state do not indicate significant systemic stress currently.
The report also addresses the potential financial fallout from California’s wildfires. Although economic losses could exceed $200 billion, the firm notes that conforming mortgage loans are unlikely to be significantly affected.
Most damaged homes fall outside the range requiring mortgage insurance, and forbearance programs have already been activated by GSEs and major lenders.
In 2024, the housing market was significantly impacted by an increase in extreme weather events, leading to a substantial rise in property insurance claims. This surge in natural disasters resulted in approximately $62 billion in insured losses during the first half of the year, marking a 70% increase compared to the 10-year average.
Severe convective storms, including tornadoes, hailstorms, and straight-line winds, were particularly damaging, accounting for over $30 billion in insurance claims within the US during this period.
Additionally, the January wildfires in California led to significant financial repercussions, with Lloyd's of London anticipating losses up to $2.3 billion.
Flood events also posed a considerable threat, with approximately 6.6% of US homes, valued at nearly $3.4 trillion, facing severe or extreme flood risk.
The escalation of these extreme weather events has underscored the need for homeowners, insurers, and policymakers to reassess risk management strategies and adapt to the evolving challenges posed by climate change.
Texas, the second-largest state by housing exposure, is also receiving increased scrutiny. While migration trends have boosted demand, some markets are seeing notable inventory increases. Media reports describe conditions in some areas as stagnating, prompting a more detailed review of regional dynamics.
Florida, which saw heightened activity during the pandemic due to population inflows, is now facing headwinds. Rising insurance premiums and elevated mortgage rates are contributing to affordability challenges and speculation around market cooling.
Despite these developments, Lockton Re does not forecast an imminent crisis in any of the states analyzed. The report notes that demand remains sidelined due to affordability barriers, and the supply of homes is constrained by existing interest rate conditions.
Lockton Re conducted a sensitivity analysis to determine the degree of home price depreciation or interest rate declines that would be required to improve affordability and increase transaction volumes. It found that the necessary changes are unlikely to occur in isolation but offer context for understanding market resilience.
The differences in affordability and housing demand across states may be tied to demographic shifts and lifestyle preferences resulting from migration patterns.
Lockton Re concludes that while local stress pockets exist, market participants with diversified exposure should continue monitoring conditions but need not expect a widespread downturn based on current fundamentals.
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