Lockton Re Launch Us Mortgage Credit Report: Unpacking the Post Pandemic Housing Market: Crisis Incoming or the New Normal?

PHILADELPHIA, MARCH 4 , 2024 – Lockton Re, the reinsurance business of the world’s largest privately held independent insurance broker, has today released a new report on US mortgage credit risk: “Unpacking the Post Pandemic Housing Market: Crisis Incoming or the New Normal?”, exploring post-pandemic market dynamics of tight supply, strong demand, and low affordability.

The report gives insight into the highs and lows of this market post COVID-19. In 2021 US housing inventory hit a 50+ year low and given the current market dynamic and rate environment, new inventory will likely be even more reliant on new homes to meet market demand.

“Home price inflation coupled with rate hikes have finally pushed buyers past the brink of affordability. Additionally, existing homeowners are reluctant to give up their favorable interest rates to introduce new supply into the market.” commented Sean Hannah, Co-Head of Mortgage and Credit for Lockton Re. Hannah continued, “The restriction of both supply and demand is keeping the market relatively balanced. This should bode well for current holders of mortgage credit risk but will be a headwind for those looking to grow their portfolios.”

Looking at the relative change since 2015, the report shows there has been an increase of ~45% in median household income compared to a 140% increase in monthly mortgage payment indicating home payments have outpaced wage inflation by over 300%.

The report predicts that supply will continue to be held hostage until rates decrease but that as they come down originations will be a return to pre-pandemic state as existing homeowners will re-enter the market. So short term this may lead to reinsurers diversifying through other lines of credit and longer term anticipated growth in this area.

“Despite the current environment many (re)insurers are still targeting credit as a business segment with opportunity for growth,” said Joe Koebele, Co-Head of Mortgage and Credit for Lockton Re. “We are seeing the anticipated reductions in new mortgage credit risk transfer issuance push more (re)insurers to look to diversify their business into other lines of credit, such as bank credit risk transfer and significant risk transfer transactions,” noted Koebele.

Read the full report here. (opens a new window)