I pick titles to my stories in several ways. Sometimes I hear an interesting turn of phrase in a movie or on some TV news or read it in an article and it just resonates with me, so I write to capture what it invoked in me when I heard or read it. Sometimes I have a decided theme in mind and I search for a word to describe it and when I capture that, I feel I have to jazz it up to sound interesting so I word-associate until something seems to work in a catchy manner. And then, sometimes, like this time, I have a very specific and deep-seated concern, one which may be ruminating inside of me, that I feel pressured to write about and I’m in search of an angle to express it. In that instance, something in the pit of my stomach might come out and voila! Thus is my title born. What is to become of us? There are so many directions that worry could be expressed on this fine weekend three quarters of the way through January in the year of our Lord, 2025. But I will avoid talking about the impending Trump inauguration, which will now be indoors in the Capitol Rotunda, where gas canisters and red dye markers were set off in dishonor and disgrace four years ago. I will not speak of the $250 million in tribute gathered from the rich and famous who fear for the loss of their standing amongst the Forbes 400 by NOT being on the dais, bowing, scraping and politely smiling as though none us are thinking that they are just big babies selling out for their next billion dollars. It’s not even about the aging process that has us all in its grip to one extent or another and is slowly, but surely, wrestling us to the mat with out face firmly planted in the luxury vinyl flooring that surrounds us everywhere. No, this is more existential.
It has a little to do with our fears about Global Warming (excuse me, Global Climate Change, excuse me, the Climate Crisis, no, the Climate Emergency, or perhaps Global Heating or the ever-popular Greenhouse Effect and its concomitant Climate Disruption and Anthropogenic Climate Alteration). But that all affects the world making it global if not completely equitably so. I am talking about that intersection of Climate, Lifestyle, Home Ownership, Mortgage Financing and Residential Property & Casualty Insurance. Did you get all that? We know that Climate and Lifestyle vary widely around the world, but judging by that deeply familiar HGTV International House Hunters database that we watch every night, Lifestyle seems to be converging on the sleek modernity of stone countertops, stainless steel appliances, big refrigerators, five-facility bathrooms (six if you’re still using bidets) and the insistence of an en-suite. I have previously explored home ownership and discovered that the American Dream long ago became the Global Dream and in so doing has caused the American Dream to shrink to 66% coverage in our fine country. Of those, 64% have mortgages rather than owning their homes free and clear. That means the Lifestyle of 43% of Americans is dependent on mortgage loans for their well-being (as a reminder, 49.8% of the voters chose Trump and that 77.3 million votes represented about 40% of the households in America…probably mostly with a mortgage).
If we think globally to the somewhat less-sophisticated (but catching up) markets, very roughly, considering global population distribution and homeownership patterns, probably 25-35% of global homeowners have some form of mortgage or formal home financing. However, this is a rough approximation given the significant data gaps and variations in housing finance systems globally. This percentage is steadily increasing as mortgage markets develop in emerging economies, but remains far below levels seen in developed markets. You see, if you want to live like a local, you can probably self-finance, but if your smartphone tells you you need to live the HGTV lifestyle, it takes a lot of financing to install those stone countertops and en-suite bathrooms. And what is it that financing requires? That’s right, it requires risk coverage through property and casualty insurance. Residential property & casualty insurance in America is required by mortgage lenders and ~95% of homeowners have such insurance. The coverage gaps have mainly been in crazy, high-risk areas with a history of repeated flooding, tornadoes, hurricanes and wildfires. It is noteworthy that among renters, that 95% penetration dips markedly to 40-45% with the exceptions being for urban areas and luxury rentals. Rough estimates of global residential properties with formal P&C insurance stands at 30-40%, though this varies significantly by region and type of coverage and it too is growing alongside the HGTV generation.
This past few weeks, anyone who was not aware of the linkages between Climate Change, Home Ownership and Homeowner Insurance got a wake-up call. I think it is fair to suggest that the California FAIR plan was something that only insurance professionals and those of us struggling to replace the insurance rugs that had gotten pulled out from under us were aware of. Now the impending bankruptcy of the FAIR plan is front page news and the potential for widespread homeowner blowback (meaning well beyond the confines of the afflicted Altadena and Pacific Palisades communities) of the cost of covering the damage done is becoming a big public policy issue. While the City Planners of Los Angeles debate how and when to rebuild the vast damaged areas of their landscape (while the fires are still burning and the dry winds not so much subsiding yet), the smoldering elephant in the room is the question of where next year’s insurance will come from.
Consider this, for those 95% of homeowners that have homeowners insurance, 64% are REQUIRED by their mortgage contract to maintain adequate coverage (defined in lender-like manner to at least cover the amount of the financing). If there are no insurance underwriters open for business and the FAIR plan is out to lunch, where does it leave those lenders or those homeowners? Hello, 2007/2008 subprime mortgage crisis, do you have any suggestions? Oh yeah, foreclose and resell…but resell to whom and how without mortgages propped up by homeowner’s insurance? This convergence of risks would make the subprime crisis look like child’s play.
So, where does this all leave us? It leaves me highly concerned. I am worried about the effect this situation has on homeowners who either run afoul of their mortgage lender (specifically default the mortgage for lack of access to insurance). I am worried about homeowners who have a large portion of their net worth in their home equity and cannot afford to leave the asset unprotected without insurance. Based on Federal Reserve data, primary residences make up approximately 25.2% of total household net worth in the United States. The visualization shows that primary residences represent about a quarter (25.2%) of total household net worth. This high percentage reflects the fact that for many households, their home is their most valuable asset. But the worst concern I have is what these circumstances are likely to do to house values and the housing market overall. The market is primed for a fall and that will be very bad for the economy. There are government fixes for this, but I fear that the Trump (or should I say Musk) administration would not look favorably on the massive intervention and bailout this might represent.
For those who think this is a California problem, it’s not. Already, Florida, the Gulf Coast and Texas are encountering similar problems. Floors, hurricanes and even wildfires are impacting border and broader swaths of the country in ways never before seen. The potential impact is far, wide and pervasive. It is also likely to easily go global with all the housing trends
underway and the pervasive nature of Global Climate Change. I’m talking to everyone I can think to about this, because I keep wondering….what is to become of us?