It feels like ages since the pandemic slowly faded, but there are still signs of a new crisis in the housing industry.
Just as we could feel the symptoms of the virus affecting our bodies, today's housing crisis is something we can both feel and see in real time. Is it still a crisis, or are we witnessing a comeback to the new normal? Let's find out!`
Reinsurance broker Lockton Re analyzed the current state of the US mortgage credit risk, and came up with a study that’s titled “Unpacking the Post Pandemic Housing Market: Crisis Incoming or the New Normal”
Everything you need to know about Lockton Re’s study
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This study aims to understand the challenges, complexities, and fluctuations of the housing market after the Covid-19 outbreak.
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The researchers have examined factors such as the shortage of houses, the high demand for homes, and the decreasing affordability after the pandemic.
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The main aspect of this study points out a big moment in 2021 when the number of houses available to buy in the U.S. dropped to the lowest level in over 5 decades.
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The Lockton Re study shows us that we’ll be dependent on the construction of new homes to combat the ongoing market conditions and interest rate fluctuations.
The Co-Head of Mortgage & Credit, Sean Hannah, FCAS said – “Home price inflation coupled with rate hikes have finally pushed buyers past the brink of affordability. Additionally, existing homeowners are reluctant to give up their favorable interest rates to introduce new supply into the market.”
Analyzed numbers show that since 2015, while people's median income has gone up by about 45%, the amount they pay for their mortgages each month has skyrocketed by 140%.
This significant difference illustrates a 300% increase in housing expenses compared to people's income.
The report from Lockton Re predicts that there won't be enough houses available until interest rates go down.
To refresh the housing market and make it a bit more active, similar to how it was before the pandemic, current homeowners can start selling their homes when they feel the rates are better.
Sean Hannah also added that the housing market is staying fairly balanced because there are limits on both the number of houses available and the number of people wanting to buy houses.
This is good news for people who currently have mortgages, but she advises people who want to expand their investments to be slightly careful.
Credit Opportunities: A Potential Return to Normalcy?
In the near future, this situation might make reinsurance companies consider investing in different types of credit lines, as it is predicted that the insurance industry will experience growth.
Joe Koebele, Co-Head of Mortgage and Credit at Lockton Re, talked about how insurance and reinsurance companies are dealing with the changes in the current market.
He said – “Despite the current environment many re/insurers are still targeting credit as a business segment with opportunity for growth, we are seeing the anticipated reductions in new mortgage credit risk transfer issuance push more re/insurers to look to diversify their business into other lines of credit, such as bank credit risk transfer and significant risk transfer transactions.”
Companies have now started to plan bigger to handle challenges and find chances to grow in the credit industry.
Another report says that as things go back to normal in insurance renewals, the property insurance part is likely to keep having good rates for the first half of the year.
So, in brief, if mortgage rates significantly decrease to levels lower than the current ones, we might witness a return to the new normal.
The good news is that economic conditions can change, and the Federal Reserve has a few meetings planned for this year.
During these meetings, there's a chance that they might decide to lower interest rates. If that happens, it would probably also bring down the interest rates on mortgages, making it more affordable for people to buy homes.