Homeownership is becoming increasingly expensive, and it’s not just due to high home prices and mortgage rates. Property taxes and insurance premiums are also on the rise, squeezing homeowners’ budgets.
According to recent data, taxes and home insurance now account for about a third of the average single-family homeowner’s monthly payment, a larger share than at any point in the last decade. Moreover, a growing number of homeowners are dedicating more than half their monthly payments to these costs.
Insurance premiums, in particular, have seen significant increases. Nationwide, homeowners are paying 52% more for home insurance than they were in 2020. In some areas, like New Orleans and parts of Florida, the increase is even more dramatic, exceeding 80%.
Andy Walden, the head of mortgage and housing research at Intercontinental Exchange, attributes these increases to several factors, including the increasing frequency and intensity of natural disasters, such as hurricanes in the U.S. and destructive wildfires in places like Los Angeles. He also notes the rising costs associated with repairing and rebuilding after these events.
These circumstances have prompted many insurance companies to raise rates and become more selective about the areas they cover. In addition to climate change, technological advancements have also played a role. Amy Bach, executive director at United Policyholders, a nonprofit, highlights the use of technology by insurers: “Insurers are using drone images of people’s roofs and properties as a basis for dropping them.” These tools, along with artificial intelligence that generates “risk scores,” allow insurers to non-renew existing customers and reject new applicants.
Another contributing factor is the significant increase in home prices since the pandemic began. Higher home values translate to higher insurance costs and property taxes.
While existing homeowners may experience relatively stable property taxes due to caps on tax increases, recent homebuyers often face a greater financial burden. Jenny Schuetz, vice president of infrastructure and housing at Arnold Ventures, explains that, “For long-term homeowners, this means you’re effectively getting a really big discount on your taxes,”. However, recent buyers pay a lot more in comparison because the market and assessed values are closer to each other.
Rising insurance and property taxes are making homeownership increasingly unaffordable. According to Walden, mortgage delinquency rates are starting to increase, particularly among those who purchased homes in recent years.
Kurt Allebach and his wife, who have owned their home near Tampa, Florida, since the late 1990s, have experienced a dramatic increase in their home insurance costs. Their annual premium has doubled since 2020 and is now almost $11,000, not including nearly another $700 for flood insurance. Despite the higher cost, their coverage has been reduced. Allebach explains that he increased his deductible to keep costs down, which exposes him to a greater financial risk in case of damage to the property. Due to these escalating costs and the uncertainty surrounding future insurance rates, they are planning to sell their house and move to Little Rock, Arkansas, where housing and insurance are more affordable.
Homeowners across the country are feeling the pinch of these rising costs. It’s a complex situation, but one thing is clear: the financial burden of owning a home is growing.
