3 Areas Insurance Carriers Need to Be Watching in a Shifting Housing Market

3 Areas Insurance Carriers Need to Be Watching in a Shifting Housing Market
While the economy seems to have recovered in recent years, there has been a considerable amount of chatter about a slowing housing market in the near future.
Interest rates are expected to increase in 2019, which impacts the affordability of housing and may make some buyers reluctant to enter the housing market. When prospective buyers step back from the market, the rise in home prices slow and properties sit on the market longer.

From the home seller’s perspective, the slowing home prices and longer period of time that it takes to sell a property may cause today’s sellers to continue to stay in their existing homes.

So what does a shifting housing market mean for insurance carriers? If we take a look back at the housing crisis in 2008, some homeowners chose to put off property maintenance in an effort to allocate financial resources elsewhere. As a result of deferring property maintenance, insurance carriers assumed more risk by having policies on properties that weren’t being cared for as they should.

As we enter into the busy spring market, it will be interesting to see how housing sales compare to previous years and if we indeed experience a slowdown. With that being said, here are three areas that insurance carriers need to be watching in anticipation of a shifting housing market:

1. Investment in Property Maintenance
We just touched on how deferred maintenance can deteriorate the value of a property, thus increasing the insurance risk. Although some insurance carriers may not consider a lack of investment in property maintenance to be one of the telltale signs of a shifting housing market, it’s important to note as it has a direct correlation to consumer confidence. If homeowners don’t feel confident in the future outlook of the economy, they’ll be less likely to spend money on the upkeep of their properties.

When properties are not maintained on a consistent basis, their risk profile greatly increases for carriers due to the frequency and severity of claims. With the growing disparities between properties that are appropriately maintained and those that are not, it’s important that insurance carriers are using the most current property condition data when underwriting a policy. Since data can lag, making an in-person property inspection part of the underwriting process will help to mitigate risk in a shifting housing market.

2. Single-Family Housing Authorizations
Historically, the number of single-family housing authorizations has served as a good indication as to whether a recession is coming. Over the last few months, this number has slightly declined (for example, a 3.48 percent decrease in January 2019), and it’s projected that this deceleration pattern will continue throughout 2019 and 2020. Insurance carriers should keep their eyes on this number as knowing the current housing market and economy will allow them to more accurately underwrite policies and assess risk.

3. Reinvestment in Communities
Generally, when the economy and housing market is strong, you can expect to see reinvestment in communities in the form of demolition in an effort to improve communities. Certain regions in the U.S., including California, Florida, and Michigan, experienced an uptick in demolitions in 2018, which is a positive sign for the economy. However, insurance carriers should be privy to the status of post-demolition construction projects in their regions as projects that don’t see completion could be an indication of a shift in the housing market, therefore impacting insurance risk.

It’s important that insurance carriers be aware of indicators of a changing housing market and economy to best mitigate risk. Contact us at Insurance Risk Services to learn how we can help strengthen underwriting.

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