Federal Reserve Chair Jerome Powell told the Senate Banking Committee that some areas of the United States may be uninsurable in coming years. Testimony during the Fed’s recent semiannual monetary policy report to Congress, Powell said that insurance companies and banks are already “pulling out of coastal areas, areas where there are a lot of fires.” He predicted that in “10 or 15 years there are going to be regions of the country where you can’t get a mortgage.”
He noted that the issue likely would fall on homeowners and on state and local governments.
“I don’t know that it’s a financial stability issue, but it certainly will have significant economic consequences,” he said, also addressing concerns about elevated mortgage interest rates, housing affordability and the potential release of Fannie Mae and Freddie Mac from conservatorship.
Powell said that although mortgage rates remain high, they are not directly related to the Fed’s rate, but rather to the 10-year Treasury. He added that even when rates eventually drop, there will “still be a housing shortage in many places,” partly due to the pandemic’s effects, which increased the cost of homeownership.
“It’s not obvious that lower rates would lead to lower housing inflation because that would increase housing demand,” Powell said. “It would unlock people’s low mortgages, but that would create both a buyer and a seller, so it’s not clear that would be something that would drive down housing inflation.”
