The Growing Insurance Crisis in Housing
The frequency of extreme weather events and natural disasters is not only increasing, but so too is the cost of homeowners insurance. This surge in insurance costs is exacerbating the home affordability crisis for prospective buyers, who are already struggling with high home prices and mortgage rates. Existing homeowners are also feeling the strain as their monthly premiums significantly increase.
Recent years have presented numerous challenges for prospective homeowners. Limited housing availability, escalating prices, and mortgage rates that more than doubled have driven affordability to its worst level in at least 20 years, according to the Federal Reserve Bank of Atlanta. The Atlanta Fed’s Home Ownership Affordability Monitor reveals a gap of almost $45,000 between the median income needed to reasonably afford a median-priced home and today’s actual median household income — one of the largest gaps in the monitor’s history.
The dramatic increase in home prices since 2020 and the rise in mortgage rates largely explain this gap. Property taxes have also increased in line with property values. However, another critical factor is now creating new challenges for both first-time buyers and existing homeowners: the soaring cost of homeowners insurance.
Natural Disasters Drive Insurance Price Hikes
Homeowners insurance premiums grew by 24% across the country between 2021 and 2024, according to an April 2025 report from the Consumer Federation of America (CFA). This represents an average annual increase of $648 — a significant rise, 11% higher than cumulative inflation over the same period.
Recent data from the U.S. Department of the Treasury revealed that the annual number of major disaster declarations for climate-related events from 2018 to 2022 was almost double the annual average over the 50-year period from 1960 to 2010. In the first three quarters of 2024 alone, natural disasters caused an estimated $145 billion in economic losses across the U.S.
The fact that housing continues to be built in areas prone to natural disasters is another contributing factor. As the number of these events increased, subjecting more properties to severe damage, rebuilding costs rose as well. Verisk’s Q4 2024 Remodel Index noted that material and labor costs for home repairs and improvement projects have increased by more than 64% over the last decade.
Impact on Homeowners and Buyers
Rising insurance premiums are eroding housing affordability by inflating monthly housing costs, potentially pricing out buyers and straining the budgets of existing homeowners — particularly those on fixed incomes, according to Odeta Kushi, deputy chief economist at First American Financial Corporation.
Buyers must now factor increasing premiums into their monthly housing costs. Borrowers will need to afford not just the principal and interest payments on these loans, but higher insurance premiums and property taxes as well. With affordability already weak, this will likely result in some borrowers not meeting the minimum financial requirements for mortgage loans.
Eventually, rising insurance rates might lead to home price declines. “These elevated insurance costs can lead to discounted property values in high-risk regions,” Kushi says. They “may ultimately dampen transaction activity, as buyers grow more hesitant to commit to homes that carry a heavier financial burden.”
Uncertain Times Ahead
Virtually every part of the housing ecosystem is feeling the impact of billions of dollars in insurance claims caused by extreme weather events and the resultant increase in insurance premiums. Builders face more rigorous building codes, lenders need to factor in higher monthly housing costs, and appraisers must consider the impact of higher finance costs and specialized building features.
The future of the housing market remains uncertain. One thing is certain: this is a problem that will likely worsen before it improves.
