'A Recipe For Market Instability' — Fed Chief Powell Predicts Mortgages Won't Be Available In Some Regions, But It Has Nothing To Do Rates

Owning a home isn't just about affording the monthly mortgage—it's about securing insurance. And according to Federal Reserve Chairman Jerome Powell, that's becoming a major problem.

Speaking before the Senate Banking Committee on Feb. 11, Powell warned that banks and insurers are pulling out of high-risk areas, leaving some regions at risk of becoming completely unmortgageable in the coming years.

"If you fast forward 10 or 15 years, there are going to be regions of the country where you can't get a mortgage," Powell told lawmakers, explaining that both banks and insurance companies are withdrawing from coastal areas and fire-prone regions they consider too risky.

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His comments came in response to Sen. Tina Smith (D-MN), who highlighted a recent First Street Foundation analysis estimating that climate-related risks could wipe out $1.4 trillion in U.S. real estate value over the next 30 years.

Banks, Insurers, and Billions in Property at Risk

For lenders, homeowner's insurance isn't optional—it's a requirement. If insurers refuse to cover homes, banks won't issue mortgages.

And that's already happening. Insurance giants like State Farm and Allstate ALL have been pulling out of high-risk areas, canceling policies in states prone to wildfires, hurricanes, and flooding.

In Los Angeles' Pacific Palisades neighborhood, State Farm dropped thousands of policies—just months before wildfires tore through the area.

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Between 2020 and 2022, insurance companies declined to renew 2.8 million homeowner policies in California, according to the latest data from the state's Department of Insurance, according to CNN. 

"It's not that banks will stay there and keep making loans in the face of evidence of disaster," Powell said. "Or that insurance companies will write policies—they can cancel those policies every year."

A Crisis That Could Crush Home Values

The implications of an uninsurable housing market are enormous—not just for homeowners, but for entire economies.

Smith pointed out that when insurance becomes unaffordable—or simply unavailable—home values plummet, creating instability in both the rental and mortgage markets.

"The prospect of trillions of dollars of property becoming uninsurable is clearly a recipe, it seems to me, for market instability both in the rental and mortgage market," she warned.

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Powell didn't dispute the risk, acknowledging that state and local governments are already stepping in where private insurers have walked away. "They want those areas to remain prosperous," he said.

Falling Interest Rates Won't Solve This Problem

While Powell said interest rate normalization might provide relief to homebuyers in the future, he emphasized that high rates aren't the root of the housing crisis—supply is.

"There's a short-term problem which will go away in the coming years," Powell said. "But there's a longer-term problem with housing affordability, and that's something that's not within our authorities or powers to affect."

Even if rates drop, Powell argued that demand would likely surge—meaning affordability could remain an issue.

"It would unlock people's low mortgages, but that creates both a buyer and a seller," he said.. "It's not clear that that would be something that would drive down housing inflation."

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A Market on the Brink of Instability?

With insurers pulling out, lenders tightening restrictions, and a $1.4 trillion real estate risk potentially looming, the U.S. housing market could be headed for an insurance-driven affordability crisis.

And if Powell's warning holds true, some homeowners may soon find themselves unable to sell—not because of rates, but because no one can get a mortgage at all.

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