Listen
Show Notes
Today on Real Estate Backstage, California’s insurance market is in a state of crisis … Mortgage rates fall on the heels of December’s inflation report … the Supreme Court declines to hear NAR’s appeal in its years-long dispute with the DOJ … Vanderbilt Mortgage is the latest recipient of CFPB enforcement action … and a looming TikTok ban could impact how some real estate agents generate leads.
California Wildfires, and Insurance Market
According to Insurance.com:
“California’s home insurance crisis is ongoing, as wildfires have driven big name insurance companies to stop writing new home insurance policies in the state and sent rates skyrocketing in high-risk areas.
The latest outbreak of wildfires including the Palisades and Eaton fires, underscores the crisis. Pacific Palisades was hard-hit by State Farm’s decision to back out, with 69% of the company’s policies there nonrenewed. The California FAIR plan, the insurer of last resort saw an 85% increase between 2023 and 2024, Insurance Journal reports.
State Farm, Allstate, Farmers and Safeco all announced decisions to halt or slow sales of new policies … Other companies that have made similar moves include The Hartford, Tokio Marine, AIG and Chubb. Recently, State Farm said some policies will only be renewed if the homeowner accepts the policy without fire coverage, while Allstate paused new sales as costs mount.”
(Source: Insurance.com)
Press release from State Farm on May 26, 2023:
“State Farm General Insurance Company, State Farm’s provider of homeowners insurance in California, will cease accepting new applications including all business and personal lines property and casualty insurance, effective May 27, 2023. This decision does not impact personal auto insurance. State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.
We take seriously our responsibility to manage risk. We pledge to work constructively with the CDI and policymakers to help build market capacity in California. However, it’s necessary to take these actions now to improve the company’s financial strength. We will continue to evaluate our approach based on changing market conditions.”
(Source: StateFarm.com)
Press release from State Farm on March 20, 2024:
“State Farm … is working to ensure its long-term sustainability in California. In doing so, State Farm General has had to make some difficult but necessary decisions that will impact a portion of our California policyholders as follows:
Non-renew approximately 30,000 homeowners, rental dwelling, and other property insurance policies … These actions are California-specific and will occur on a rolling basis over the next year, beginning on July 3, 2024, for homeowners, rental dwelling, residential community association and business owners policies and on August 20, 2024, for commercial apartment policies. Combined, these policies represent just over 2% of State Farm General’s policy count in California.
… 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 insurance regulations. State Farm General takes seriously our responsibility to maintain adequate claims-paying capacity for our customers and to comply with applicable financial solvency laws. It is necessary to take these actions now.
We also recognize the Insurance Commissioner’s proposed regulatory reforms, such as streamlining the rate application process, accounting for catastrophe modeling and reinsurance costs in rates, and addressing FAIR Plan vulnerabilities. We will continue to work constructively with the California Department of Insurance, the Governor’s Office, and policymakers to actively pursue these reforms in order to establish an environment in which insurance rates are better aligned with risk.”
(Source: StateFarm.com)
It’s worth noting that in California, insurance carriers have to give policyholders written notice of non-renewal at least 75 days in advance of a policy expiration date.
According to an S&P Global report on State Farm’s financial performance:
“We expect the overall combined ratio, which has been improving recently, to reach 105%-107% in 2024 and 101%-103% in 2025… with the natural catastrophe loss of around 8%.
In 2023, the combined ratio improved slightly to 116.6% from 117.2% in 2022 owing to management’s efforts on profitable underwriting and increases in pricing for the personal lines. However, the higher loss severity, along with the total catastrophe loss of $9.5 billion in 2023, compared with $5.1 billion in 2022, affected operating performance.”
(Source: spglobal.com)
Cumulative inflation over the last four years is in excess of 21%, as measured by the consumer price index.
(Source: Federal Reserve)
However, inflation for construction materials costs has been even worse. According to the Producer Price Index, construction materials prices are up about 40% since February of 2020, just before the pandemic.
(Source: mmmlaw.com)
December Inflation Report Send Rates Lower
According to the Wall Street Journal:
“Treasury yields and the dollar fall as December inflation is in line with expectations. Headline 12-month CPI is 2.9%, up from November’s 2.7% but meeting consensus forecast in a Wall Street Journal survey. The core reading is 3.2%, while surveyed economists expected a repeat of November’s 3.3% pace. The results could ease fears that the Fed might need to be even more hawkish than it signaled in December. Yields were already trending lower and deepened their losses after the data.”
(Source: wsj.com)
According to HousingWire:
“Housing markets across the country that have faced persistently high home prices may be getting a break … core inflation — inflation outside of volatile food and energy costs — increased 0.2% relative to last month, which is a slower pace than the 0.3% month-over-month rises experienced over the last four months.
And most important for the housing industry, shelter costs rose by 4.6%, which is the slowest pace of housing cost increases in three years. For context, it peaked at 8.2% in March 2023.
‘The conquering of inflation will be a key factor in bringing down the mortgage rates, which so far have refused to budge even as the Federal Reserve has been cutting other interest rates,’ said National Association of Realtors Chief Economist Lawrence Yun in a statement.
‘Various non-official private sector data are pointing towards no growth in apartment rent due to the vast oversupply of new empty units hitting the market. Mortgage rates will move slightly lower – perhaps to 6.5% just in time for the spring home-buying season.’ ”
(Source: HousingWire.com)
Supreme Court Denies NAR’s Appeal
According to Real Estate News:
“Today, the high court has announced its decision: It will not take the case, leaving in place a judgment made by the U.S. Court of Appeals last April allowing the DOJ to continue investigating the association.”
(Source: RealEstateNews.com)
Vanderbilt Mortgage Is The Latest Recipient of CFPB Enforcement Action
According to Inman:
“A mortgage lender that specializes in providing financing for manufactured homes has landed in hot water with federal regulators, who claim the company ‘saddled borrowers in the greatest need with mortgages that they couldn’t reasonably afford to repay.’
Maryville, Tennessee-based Vanderbilt Mortgage and Finance — which also does business as Silverton Mortgage — is accused of violating the Truth in Lending Act and Regulation Z. Regulation Z requires that all mortgage lenders document and verify borrowers’ income to determine whether they have the ability to repay the loan they’re applying for.
Vanderbilt, which mostly provides financing for homes built by its parent company, Clayton Homes Inc., “ignored clear and obvious red flags that certain consumers would not be able to repay their loans according to their terms,” the Consumer Financial Protection Bureau alleged in a Jan. 6 complaint.
In a statement provided to Inman, Vanderbilt characterized the CFPB’s allegations as ‘unfounded and untrue, and … the latest example of politically motivated, regulatory overreach.’ Vanderbilt said the CFPB examined ‘tens of thousands’ of loans ‘and identified less than 0.8 percent, over a six-year period, that allegedly should not have been made.’ Vanderbilt ‘follows the law, and the facts bear that out,’ the company said.”
(Source: Inman.com)
TikTok Ban
According to RISMedia:
“In April 2024, President Joe Biden signed a bill mandating TikTok parent company ByteDance divest from the app or else it will be functionally banned in the U.S. on January 19, 2025.
What does the ban look like? While there is little precedent for a government ban of a major social media platform, expectations are that companies who control app stores, such as Google and Apple, will remove TikTok from their platforms so that new users cannot download it onto their devices. TikTok would most likely not be removed from existing users’ devices, but they would not be able to update it anymore, so the app could eventually become unusable.
ByteDance is based in China, and the pervasiveness of TikTok has produced international controversy, with claims (including from a former employee) that the Chinese government is able to spy on TikTok users’ data. TikTok has denied any such links to the Chinese government; in a March 2023 congressional hearing, the company’s CEO Shou Zi Chew (a Singaporean citizen) maintained that U.S. TikTok users’ data is well-secured.
Opponents of the ban, including TikTok itself, have argued that it is an overreach that infringes on freedom of speech. The U.S. Court of Appeals for the D.C. Circuit disagreed with this assessment in a ruling permitting the ban back in December 2024.”
(Source: RISMedia.com)
Leave a Comment