Q: State Farm and Allstate have announced they will no longer sell new home insurance policies in California because of wildfire risks and an increase in construction costs. What does this mean for prospective homebuyers?

A: In certain high-risk areas of the state, there are very few insurance companies willing to write new policies. In some, State Farm was the last private insurance company writing policies. In those areas, the generally more-costly California FAIR plan may end up being the only property insurance available.

Q: How does this decision impact existing State Farm and Allstate policyholders?

A: State Farm and Allstate will continue to service and renew policies of existing clients in the state and offer new auto insurance policies. However, they will not be issuing any new property insurance policies for the time being in California.

Q: What will happen if more companies follow State Farm’s and Allstate’s moves?

A: There are still a wide range of companies writing policies in California. However, those willing to write new policies in higher risk areas are declining, and as stated above, with the departure of State Farm and Allstate, those in more high-risk areas may have no other option than the FAIR plan.

Mortgage rates fell last week, but demand for home loans didn’t move higher as a result. Other aspects of today’s housing market are outweighing the benefit of lower mortgage rates right now, namely a lack of supply.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.40% from 6.45%, with points falling to 0.59 from 0.62 (including the origination fee) for loans with a 20% down payment. It had been over 7% just a month ago.

Mortgage applications to purchase a home, however, dropped 4% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand was 35% lower than the same week one year ago.

“Spring has arrived, but the housing market is missing the customary burst in listings and purchase activity that typically mark the season. After four weeks of increasing purchase application activity, volume declined a bit this week even with another small drop in mortgage rates,” said Mike Fratantoni, MBA’s chief economist.

New listings were down 20% year over year in March, according to Realtor.com, and total inventory was about half of what it was in March 2019, pre-Covid pandemic.

“Although the mortgage rate for conforming balance loans declined by five basis points over the week to 6.40%, the mortgage rate for jumbo loans increased by nine basis points to 6.36%,” added Fratantoni. “While we have seen relative weakness at the high end of the housing market in recent months, the divergence in rates suggests that banks may be tightening credit in response to recent challenges, preserving balance sheet capacity as deposit balances have declined.”