Fitch: U.S. Mortgage Insurers’ 2023 Performance Pressured by Inflation, Slowing Home Prices
Fitch Ratings, New York, said stronger headwinds brought on by a slowing U.S. economy and falling home prices will likely weigh on U.S. mortgage insurers next year.
The company’s 2023 outlook report for the sector shows “deterioration,” predicated largely by a mild recession that Fitch economists are projecting in mid-2023.
“A slowdown in job growth and rising unemployment next year would worsen mortgage borrowers’ ability to stay current on their loans, raising the level of mortgage insurance claims,” said Director Chris Grimes. “However, a strong U.S. labor market and post-pandemic home equity build up remain supportive of stability in the U.S. mortgage insurance sector in 2023.”
Also factoring into Fitch’s deteriorating outlook for the sector is national home prices, which are likely to see further corrections and worsening affordability next year.
“The frequency and the severity of mortgage insurance losses could intensify if a material decline in home prices emerges broadly across the U.S.,” Grimes said. “Positively for mortgage insurers, delinquencies across all household liabilities remained low in recent quarters, and household debt service and leverage continue to be relatively low compared with historical standards.”
The report said mortgage insurers could find reinsurance costlier with rates likely primed for an increase next year. “Companies that tap MI-linked notes to sponsor new transactions as they write new mortgage insurance may find investor appetite lacking during a period of market disruption, adding to the cost of risk transfer for the mortgage insurers reliant on them,” Grimes said.