
CoreLogic Chief Economist On Witnessing The Insurance Crisis Firsthand

"I could have lost all my equity,” says Selma Hepp, who lives and works on the frontline of housing's biggest challenge in 2025
Mortgage professionals may feel a strong sense of deja vu this New Year given that economic and housing market forecasts have so far indicated the mortgage industry will face many of the same challenges as last year.
To every loan officer’s dismay, interest rates are projected to stay higher for longer and housing inventory will continue its unrelenting uphill battle. Then again, as CoreLogic Chief Economist Selma Hepp reminded mortgage originators at last week's New England Mortgage Expo in Connecticut, "Economic theory assumes steady condition; but, of course, nothing remains steady over time.”
The industry's greatest challenge in 2025, says Hepp, is the mounting insurance crisis, which she called "a complete disaster," especially in western and southeastern regions of the U.S. where recent natural disasters have taken a toll on local housing markets.
Hepp would know, considering she lives in Los Angeles, California, and lived through the recent wildfires, as she discussed in an exclusive interview with NMP.
Yes, In My Backyard
As chief economist at CoreLogic, Hepp is very familiar with studying more abstract problems like inflation, or the imbalance of supply and demand. This time, however, she saw the nation’s insurance crisis unfold in her own backyard.
“I was scared out of my mind,” Hepp told NMP. “I have an older home and I didn't have wildfire insurance. I potentially could have lost all my equity.”
Fortunately, Hepp's neighborhood narrowly avoided disaster from the L.A. wildfires. Though her home is insured, Hep discovered in the midst of disaster that her insurance did not cover for wildfire damage.
“When you look at the Palisade Fire and Eaton Fire, my home is like right in the middle,” Hepp continued. “Not that it was ever going to converge or anything like that. But, when you're looking on the map, it's pretty striking — like, oh my God, I'm in the middle of all of this.”
Having lived in California for the past 13 years, Hepp knows that wildfires in the state are generally a normal occurrence given its dry vegetation that become flammable during longer periods of droughts. The main issue, according to Hepp, is the lack of preparedness from the insurance industry and the state.
“We have not gone about them in a way that we can protect people in their homes,” Hepp said. “This was just a weird combination of events where the winds [and] the dryness — the dryness being a particularly big issue this year. But, what’s most important for the housing market is how big it was and how many homes were damaged.”
Record-Breaking Costs Of Damage
CoreLogic reports that that Los Angeles wildfires have caused an estimated $35 to $45 billion of property damage, with the Eaton and Palisades Fires less than 50% contained as of January 16, 2025. Firefighting efforts made progress over the weekend, since those numbers were released last Thursday.
CoreLogic is expected to provide final insured loss estimates once the fires have been fully contained.
CoreLogic’s estimate represents all residential and commercial insured losses for the Eaton and Palisades events, and doesn’t include any damages from the smaller fires that have occurred since the outbreak on January 7, although the large majority of the loss is expected to come from the Eaton and Palisades outbreaks.
“When you think about mortgaged homes, that would be probably about 60% of that,” Hepp told NMP. “I think those more affluent areas probably have more homes that are owned free and clear. But take 50%, for example — that's still huge.”
“The destruction caused by these fires is anticipated to be the most expensive in the state’s history with effects on the insurance industry that will persist into the future," commented Senior Director of CoreLogic Insurance Solutions, Tom Larsen, on last weeks damage estimates.
"This event highlights the paramount challenge for homeowners and the insurers that support them — the increasing density of homes and properties near the wildlife-urban-interface," he added.
The fires in Southern California look certain to drive record insured wildfire losses for the state, and potentially for the U.S., coming in significantly higher than the $10 billion in damage from the Camp Fire in 2018.
Equity & Affordability Challenges
Most homeowners’ saving grace over the past few years has been their home equity. Hepp pointed out that, despite the economic disruption, there was no significant increase in household debt from Covid-19 pandemic.
On the contrary, household wealth soared to a record high during the pandemic, creating a financial buffer for many households that are now experiencing increased financial strain. Home appreciation during the pandemic drove U.S. homeowners to net a combined $35 trillion in home equity, meanwhile home equity among mortgaged homeowners totaled $17.5 trillion.
CoreLogic reports that many have had to tap into their equity to prevent falling behind on their mortgages. Now that home equity serves as an important financial buffer for some homeowners who are facing higher homeowners’ insurance costs and taxes.
Then again, rising insurance costs in disaster-affected areas such as California and Florida are slowly chipping away household wealth.
“Everything hinges on what happens in the insurance market,” Hepp continued. “We are already seeing that in Florida’s market that got persistently hit by natural disasters leading insurance costs to soar out of people's budgets and the demand [for homebuying] slows down. People leave the area and home prices fall. The whole Gulf Coast region of Florida is struggling with that right now.””
A report by Florida’s Senate Budget Committee released in late December 2024 warned that the combination of rising homeowners insurance premiums, historically high home prices, and high mortgage rates could lead to a state housing crash.
“At the end of the day, it's all about pricing,” Hepp said. “So you will see pricing of that risk being capitalized into home prices whether by lower home price appreciation or home price declines.”
Back-to-back hurricanes in Florida have caused home sales to plummet in Florida. Hepp told NMP that the impact has also prompted builders to raise the floor level of their homes. In California, the focus is on building fire-resistant homes.
However, Hepp foresees that mounting insurance premiums in the aftermath of a natural disaster could exacerbate affordability challenges, especially in California where wealth disparity is already a major issue.
“If insurance is so prohibitively expensive that only more wealthy people can afford it, then you have this gentrifying effect and we already had the issue with such disparities in Los Angeles that can be perpetuated now by this inability to afford now insurance," Hepp added.
Still, she believes this insurance crisis has a silver lining: “Homeowners across the nation have accumulated so much home equity throughout the pandemic that even if home prices decline 5% to 10%, you won't see a lot of people going underwater because of the significant home appreciation we’ve had so far.”