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The next housing crash is coming. Which according to the US Senate, may cause "a collapse in property values with the potential to trigger a full-scale financial crisis similar to what occurred in 2008." That's… scary. But, this crisis is different. It's not starting at the banks, or supply… but something else… Home insurance. Americans now pay a record $209 a month just to insure their home. Nearly 80% more than in 2020. And one year of those price hikes was linked to around 149,000 more mortgages falling behind on payments. And the worst is yet to come. "there are
going to be regions of the country where you can't get a mortgage." There's a projected $1.47 trillion erosion in US home value over the next 30 years. So, how might insurance cause a housing crisis? If you don't follow housing, or haven't bought a house, you might wonder "why does insurance matter?" Well, it does. A lot. Most mortgage holders pay the insurance premium, the monthly insurance fee, inside their monthly payment to the bank, with the mortgage payment, aka the principal, the interest, and the property taxes. You pay it to the bank in a bucket, and the bank hands it to the insurer. But insurance is a deceptively important part of the housing market. You can't get a mortgage… without home insurance. Lenders require insurance to protect
the house the loan is secured on. So no insurance… no house. With this in mind, let's look at the first issue, which is how expensive insurance premiums are. Insurance is now 9.6% of the average mortgage payment. And across the board, this is going up. And quickly. Insurance premiums went up in 95% of U.S. ZIP codes between 2021 and 2024, and in that time, "annual insurance premiums for a typical homeowner increased by an average of $648 across the country. This translates to a 24 percent increase, 11 percent higher than the cumulative inflation over the same period."
But there are pockets of these, where it gets pretty ridiculous. North Dakota, Minnesota, Arkansas, Nebraska, and Kentucky all saw jumps over 30%, Louisiana, Pennsylvania, and Arizona saw jumps of 40%, Illinois jumped 50%, and Utah jumped as much as 59%! Some metro areas, were the worst, though. Salt Lake City, for example, jumped 62% in this period. But one of the worst, by far, is California, where from 2020 to 2026, premiums rose 84%. So why have premiums gone up so much? A piece of the puzzle, is that houses just cost more to rebuild. Rising construction costs explain slightly over half of the rise in premiums from
2020 to 2023. Rebuilding a home cost 43.9% more in October 2024 than in October 2019, and from 2014, it's over 63%. A big part is lumber, with an average increase of 43.8% since Oct. 2014. But, this isn't nearly enough to explain the jumps. A big reason, is that insurers are charging more for disaster risk. Wildfires and storms drive a lot of the increase, which is why California is so much higher. We're seeing more extreme weather and more wildfires. But… a lot of these jumps aren't just on the East or West Coast, but inland. Severe
convective storms are small in footprint but frequent, and of all the homeowner claims these storms cause each year, roughly half to 80% are for hail damage rather than wind or tornadoes. Something deeper is driving this. Not the storms or wildfires. And this impacts something else: reinsurance, which helps us understand why so many people can't even get insurance anymore. State Farm named reinsurance costs as one reason for dropping 72,000 California policies. So what is it? Well, it's basically the insurance… for insurance companies. Most claims trickle in, which the insurer can handle. Out of a thousand homes,
maybe only a handful file claims. But in a disaster, like a bad hailstorm, wildfires, or a hurricane, thousands of the insurer's customers can be hit in the same day. One storm can bring more claims in a week than the insurer collected in premiums over years. So, insurance companies, who might be more regional to one state, have reinsurance, for global coverage, not just in America. Yeah, the insurance companies, have their own insurance, and when the reinsurers raise prices… it can cause problems. Insurers pass their reinsurance bill straight on to customers. By 2023 the jump had added nearly $300 a year to premiums in the most exposed ZIP codes. But what happens, when insurers can't afford it? What happens when hundreds of thousands,
or millions of homes, aren't even worth insuring? The answer, may lead to a new housing crisis… In March 2024, Cindy Picos had her home insurance dropped. Why? Well, CSAA Insurance said her roof had "lived its life expectancy." Yet, they hadn't visited her home. They had dropped her insurance, just from an aerial photo. And… they refused to let her even see the photo. Insurance companies have stopped deploying people to inspect homes, and will instead deploy drones, airplanes, even high-altitude balloons to take photos. It's not just niche parts of the US either. These programs can cover 99% of the US population.
"Not every company's using this kind of technology, but, they will eventually." Cindy paid for an independent inspection, and sure enough, the roof was in great shape. Another 10 years. But when this was submitted, CSAA Insurance… just refused to change its decision. And some of these are weird. Another homeowner, Marilyn Smith, had their insurance dropped… because in the photo… the pool was drained? Yeah. They had emptied it to conserve water during a drought, and to save on maintenance. Perfectly reasonable. But according to AAA,
the pool showed signs of "deferred maintenance." So… their home insurance was dropped. "She just flat out said because the pool was empty. I don't understand what their problem is. Because you empty a pool and you're saving on water. I think I was in so much shock, I couldn't believe it. I mean, we were both in shock. Because the pool is empty. What's that got to do with canceling your home insurance?" This is becoming shockingly common. And of course, this comes with huge privacy concerns, but you might be thinking "what does this have to do with a housing crisis?" Well, as you might
have noticed, insurers are getting very, very picky about who they'll insure. Now, you can do everything right, and still get dropped. Without making a claim or missing a payment. The US Treasury looked at 246 million home insurance policies from 2018 to 2022. A policy being one home's insurance contract for one year. "Consumers in the highest risk ZIP codes faced higher policy nonrenewal rates, with average nonrenewal rates about 80 percent higher than those in the lowest risk ZIP Codes. Moreover, average nonrenewal rates increased more in the highest risk areas than in the lowest risk areas over this period, which indicates that consumers faced decreasing availability."
So, what does that mean? If you live in riskier areas, places more likely to have wildfires or coastal areas… you're nearly twice as likely to have your insurer drop you, compared to safer areas. So, if you live somewhere where you need insurance, you're more likely to have no insurance. Between 2018 and 2022, Florida saw a 280 percent increase in nonrenewal rates. And if you aren't dropped, your premiums are getting higher. In 2024, State Farm dropped coverage for 30,000 homes and 42,000 apartments in California. And, I find State Farm's reasoning interesting. "This decision was not made lightly and only after careful analysis of State Farm General's financial health,
which continues to be impacted by inflation, catastrophe exposure, reinsurance costs and the limitations of working within decades-old regulations" From 2017 to 2024, insurers made no profit on home insurance in seven of the eight years. In 2024, homeowner insurers saw a loss of $1.3 billion. And a big part of that, was not only the cost of rebuilding homes, but also those rising reinsurance costs. But that's changed. In 2025, home insurers made $16.5 billion in profit, the first time since 2019. And that's not all. Reinsurance prices are down 22% from the 2024 peak. So, why are premiums still rising? Why are so many homes being dropped? Well, risk.
Insurers are trying to carry less risk after years of losses and expensive reinsurance. They are also, trying to reduce cost. Aerial photos allow them to be cheap, and picky at scale. Which, of course, they use AI to analyze these photos. Millions of homeowners across the United States are being denied or priced out of property insurance coverage. So what happens to all of those who get dropped by private insurance? Well, many end up on state-created insurers of last resort. But this is higher-priced, less comprehensive insurance coverage. And, it's not just the riskiest homes ending up on these plans.
"A new phenomenon is emerging: Californians' dependence on the FAIR Plan is now showing up with mortgages in moderate- and low- wildfire risk zip codes at twice the rate of its overall market share. The problem is bigger than most people think, and it's going to get worse before it gets better." But… what about people who just aren't insured altogether? Well, this, the rising premiums and more people on state insurers of last resort, is why we seem to be approaching an "insurability crisis." "One in thirteen American homeowners are uninsured-approximately 7.4% - living in about 6.1 million homes." According to the Consumer Federation's 2024 study, uninsured homeowners are concentrated among lower earners, owners of manufactured homes,
and people who inherited their home. The total number could be even higher though. Other estimates put between "7 percent and 13 percent of all homes in the country as uninsured, and that number is on the rise." So how does a rising uninsured housing market, lead to a financial crisis? Well, let's break it down. In the 2008 financial crisis, millions of homeowners became "underwater," meaning, they owed more than their homes were worth. This made refinancing or selling impossible or very unattractive, because it doesn't cover the mortgage, and you'd still owe money. So defaults shot up. We're seeing something similar… just in a different order. If no one will insure your home, and no one will buy it… what is your asset really worth?
"If those homes become uninsurable and unmarketable, the values of the homes will plummet, perhaps to zero. Unlike recent experience, homeowners will have no expectation that the values of their homes will ever recover" So, prices fall. And they already are. "The reinsurance shock reduced 2023 home values by an average of $8,400" Texas and Florida have seen home prices fall more dramatically, and account for 39% of all underwater homes nationwide. "The number of borrowers who are underwater was up 44% year-over-year at the end of June to 813,000". But it's not just houses that can't be mortgaged. It's people trying to get a
mortgage too. "A $1,000 increase in annual property insurance premiums increases the probability of mortgage refinancing denial", by 15%. New purchases also fall by 7.8 percent. It also means people fail to pay their mortgage more. "The average single-family mortgage holder now pays a record $209 per month for insurance, nearly 80% more than at the start of 2020." Researchers at the Dallas Fed tracked millions of mortgages and found that when insurance bills went up, more people fell behind on their home loan. The typical premium rise in 2022
and 2023 alone was linked to around 149,000 extra Americans missing mortgage payments within a year. About one in ten buyers and sellers now hit insurance problems too, many of which caused a deal to fall through. In California, it's one in seven sellers. The Federal Reserve Chair Jerome Powell told the Senate Banking Committee "in 10 or 15 years there are going to be regions of the country where you can't get a mortgage." And something we have to remember, is that insurance, in many cases, isn't just for the homeowner. It's for the bank. It's why you can't get a mortgage without home insurance, to protect the bank's loan if the house is destroyed.
Without insurance, the loss moves from the insurer to the lender, be it mortgages themselves, or mortgage-backed securities. "Since mortgages and mortgage-backed securities are central to the financial sector, increased delinquencies can destabilize financial institutions. Thus, climate change's impact on insurance rates represents an emerging threat to broader financial stability." "This is predicted to cascade into plunging property values in communities where insurance becomes impossible to find or prohibitively expensive-a collapse in property values with
the potential to trigger a full-scale financial crisis similar to what occurred in 2008…" Houses aren't the only market which is going through a crisis. Another surprising one, is used cars. Ever since the pandemic, something in the market broke, and has never been fixed. Affordable used cars are disappearing, and to find out why, watch this video next.
