As scores of climate change-denying Republican lawmakers prepare to take control of Congress and the Senate, an insurance affordability and availability crisis catches the eye of regulators, and large lenders work to assess portfolio exposures to accelerating climate change, a big “IF” hangs over mortgage professionals and homeowners next year.
“Overall, 2025 could bring a more balanced home insurance market if inflation remains in check and severe weather events are limited,” offered Matic, a digital insurance brokerage that partners with hundreds of mortgage lenders nationwide, in its annual year-end assessment.
“However,” the report continues, “the market will be highly responsive to weather patterns, regulatory decisions, and broader economic trends.” The report derives its findings from 10 million quoted and Matic-insured properties, and 36 million quote requests to Matic, 3rd-party quoting engines, and carrier-direct quotes from June 1, 2018 through Nov. 15, 2024.
While existing-home sales scored a three-year first in October, rising 2.9% on an annual basis according to the latest figures from the National Association of Realtors (NAR), 10-year Treasury yields that have (mostly) only climbed since mid-September have hoisted mortgage rates back to 7%, erasing tens of thousands of dollars in purchasing power borrowers gained as rates fell over the summer.
With Federal Reserve Chair Jerome Powell voicing uncertainty over an additional rate cut in December, how the market will respond to Republicans’ promises of tariffs, tax cuts, and mass deportations remains highly uncertain. Taking a regulatory foot off the climate-resilience pedal may roil markets, as well as homeowners.
Today, Fannie Mae's Economic & Strategic Research (ESR) announced that mortgage applications "over the last month have fallen back to their recent lows, pointing to lower home sales to close out the year.” Such incoming data has led Fannie Mae to dramatically revise downward its existing-home sales and mortgage rate forecasts for next year.
Economists for the government-sponsored enterprise predict mortgage rates will end 2025 around 6.3% (previously 5.6%), while existing-home sales were lowered to 4.18 million, from 4.52 million. Total existing-home sales are expected to total 4.01 million by the end of 2024, down from their previous projection of 4.06 million, to represent a 30-year low.
Growing Insurance Impact On Mortgages
This year began with record-breaking rate increases for new and existing policies, coupled with declining policy options for homeowners. As of September, half of prospective homebuyers were unable to afford basic housing costs, with insurance costs a driving factor for relocation.
Despite home insurance comprising a critical component of the principal, interest, taxes, and insurance (PITI) calculations by which mortgage borrowers are qualified, only 16% of surveyed lenders feel well-informed about insurance markets, according to Matic, revealing a sizable knowledge gap among this industry’s leadership on how to help originators help their clients.
Rising insurance costs’ and the impact of escalating climate change on homebuyer behavior has emerged as a clearer trend among younger first-time homebuyers, particularly in the aftermath of Hurricanes Debby, Helene, and Milton — a string of disasters that reminded the nation how catastrophic losses from increasingly severe storms are occurring in every market.
Mortgage lenders and originators are keen — if not desperate — to qualify these first-time homebuyers and renters stuck renting, but an era of accelerating unaffordability has overlapped with an era of concentrated demand among these sidelined homebuyers, exacerbated by persistent lock-in effects and highlighted by tripling rentership rates.
Matic’s year-end assessment indicates some “early signs of stabilization” have occurred in home insurance markets as they have evolved throughout the year. Homeowners experienced average rate increases of 17.4% for new policies in 2024, with the average homeowner who bought a policy in 2021 paying 69% more at their 2024 renewal, or an additional $865 annually.
As of November, however, rate growth showed signs of tapering, with the average increase for new policies dropping from 10.7% in the first half of the year to 6.6% in the second half.
“While we expect a more stable outlook, homeowners should still anticipate upward pressure on premiums,” Matic's report read. Premium growth is expected to continue, but at a more controlled pace.
First-time homebuyers and renters are not the only prospective borrowers hurting from home insurance costs, though. Over 90% of fix-and-flip investors in Florida and 83% in California have said they missed out on an investment opportunity due to insurance issues.
“Market re-openings and greater coverage options for homeowners will likely continue,” Matic's report added, as most major carriers achieved profitability by mid-2024. Moderating inflation also helped reduce repair expenses, which includes the cost of building materials.
Repair And Remodeling Costs Decelerating
Besides the increasing severity and frequency of extreme weather across various perils and various markets, home repair and remodeling costs that have risen 69.5% over the past decade — juiced by pandemic-era inflation and supply-chain disruptions — have significantly contributed to the precipitous rise in home insurance costs in recent years.
These costs decelerated in the third quarter of 2024, rising only 1.08% from the second quarter and just over 3.35% from a year ago, according to Verisk’s third-quarter update to its Remodel Index. Verisk is a global data analytics and risk assessment firm with nearly $40 billion in market capitalization.
“In the most recent quarter,” VP of Pricing for Verisk Property Estimating Solutions Greg Pyne explains, “those increases appear to have been driven largely by increased labor costs rather than rising material prices.” Compiled monthly in more than 430 local markets across the U.S., the Verisk Remodel Index tracks costs on 31 different categories of home repair, covering more than 10,000 line items ranging from appliances to windows.
By way of example, two categories reporting the highest quarterly increases were painting the exterior of a home (+3.36%) and replacing tile flooring (+2.18%) — repairs where labor costs account for a very high percentage of the cost of the job. Verisk estimates that labor drives roughly 55% of exterior painting costs, and roughly 64% of the cost of replacing tile flooring.
Other notable changes in third-quarter costs included: concrete and asphalt, which comprise almost 3% of repair costs nationally, increased 0.12%, while siding, which accounts for the largest percentage of costs, rose 0.7%. Cabinetry saw the largest quarterly decrease (-0.11%).
While home prices have risen more quickly than repair and remodeling costs over the past year, repair and remodeling costs rose more quickly on a quarterly basis in the third quarter, Verisk’s report indicates. Home prices and repair costs both outpaced the rate of inflation.
While all regions experienced cost increases quarterly and annually in the third quarter, those quarterly increases ranged from a low of 0.84% in the East South Central and West South Central Regions to 1.21% in the Mountain Region.
All regions experienced annual increases of more than 3%, ranging from a low of 3.03% in the West South Central Region to 3.68% in the South Atlantic Region. Slowing rates of increase suggest these repair and remodeling costs are moderating, though.
“A year ago, annual increases were over five percent in every region, and over six percent in the East North Central, Mountain, and New England Regions,” says Pyne. “So it does appear that while prices continue to rise, they’re doing so at a slower pace.”
