Fed's Powell warns climate change will affect housing market

Federal Reserve Chair Jerome Powell cautioned that some areas of the country may be uninsurable in the next decade.Speaking in front of the Senate Banking Committee, Powell noted that insurance companies and banks are already "pulling out of coastal areas, areas where there are a lot of fires." He predicted that in "10 or 15 years there are going to be regions of the country where you can't get a mortgage."

This issue will fall on homeowners and on state and local governments, he added during his semi-annual report to Congress on monetary policy Tuesday.

"I don't know that it's a financial stability issue, but it certainly will have significant economic consequences," he said.The head of the Federal Reserve also addressed concerns about elevated mortgage interest rates, housing affordability and the potential release of Fannie Mae and Freddie Mac from conservatorship.

Powell told lawmakers that although mortgage rates remain high, they are not directly related to the Fed's rate, but rather to the 10-year Treasury. He added that even when rates eventually drop, there will "still be a housing shortage in many places," partly due to the pandemic's effects, which increased the cost of homeownership.

"It's not obvious that lower rates would lead to lower housing inflation because that would increase housing demand," Powell said. "It would unlock people's low mortgages, but that would create both a buyer and a seller, so it's not clear that would be something that would drive down housing inflation."

As of Feb, 6, the 30-year fixed rate loan averaged 6.89%,compared with 6.95% one week prior, per the Freddie Mac Primary Mortgage Market Survey.

Regarding Fannie Mae and Freddie Mac, Powell said the current conservatorship "does hold down mortgage rates." He deflected a question from Sen. Jack Reed (D-R.I.) about whether government-sponsored enterprises going private would be "detrimental to the housing market," instead saying that putting them "back in the private sector has some appeal over the longer run, but I leave that with you."The Trump administration is expected to take steps toward privatizing the two entities. In written statements submitted to the Senate Banking Committee in late January, Treasury Secretary Scott Bessent said Fannie Mae and Freddie Mac should be released, but it should be done in a measured way.

"I look forward to working on the current status of the conservatorship of Fannie Mae and Freddie Mac," Bessent wrote. "The conservatorships have persisted for more than 15 years, and no conservatorship should be indefinite. However, any actions pursued should be carefully designed and executed."