Record inflation can make people wonder if home ownership is still a good investment.
Home prices are rising faster than incomes, which can be a problem for homeowners because as the value of a home increases, so does the cost of maintaining it.
More than 1 in 4 homeowners with mortgages are considered “cost-burdened,” meaning they spend more than 30% of their income on housing costs, according to a 2023 analysis of U.S. Census data by the Chamber of Commerce.
“Unfortunately, many people go in to buy a home and don’t understand that their monthly payment can change,” said Devon Viehman, regional vice president of the National Association of Realtors.
Changes to two expenses in particular tend to surprise people, experts say.
“How many [homeowners] they failed to anticipate the increase in both property taxes – and that’s related to their home value increasing, which helps them on some level – as well as the increased cost of paying for that insurance,” said Mark Hamrick. senior financial analyst at Bankrate.
“Paper” wealth and rising costs
Homeowners accumulate an average of $225,000 in wealth from their homes over a 10-year period, according to 2022 report by the National Association of Realtors.
“That wealth boils down to it being mostly just on paper, and the time you cash in on that asset is when you sell the house,” Hamrick said.
Property taxes are one of the expenses that can increase with home value. Homeowners whose properties were reassessed between 2019 and 2023 amid soaring assessments saw an average tax increase of 25 percent, according to a February 2024 study by CoreLogic. Annual median reassessed U.S. property taxes rose more than $600 during that period.
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Home insurance is the other major expense that can fluctuate after a home purchase.
There was also one 20% increase. in average home insurance premiums between 2021 and 2023, according to insurance comparison firm Insurify. Insurify estimates it will grow another 6% by the end of 2024.
Florida, Louisiana, Texas and Colorado have seen the biggest increases in insurance rates during this period affected by extreme weather.
Florida leads the pack. The average annual rate for home insurance in Florida was nearly $11,000 in 2023;which is more than $8,600 more than the US average. The cities of the state make up six of the 10 most expensive cities to insure in the country, according to Insurify.
In addition, the cost of repairing a home has increased, which also affects insurance premiums.
“This is going to be an area to watch for the foreseeable future, simply because it’s such a dynamic and volatile and potentially costly environment,” Hamrick said.
Tips for Home Buyers
NAR’s Viehman recommends that people shopping for a home “rely on their realtor first.” She recommends that homebuyers ask their real estate agent for a history of costs associated with owning the home, such as property taxes, insurance, garbage collection, water, gas and electric bills.
Homebuyers should also see if the state they want to buy in has laws that limit property tax increases per year.
Just because you qualify for $3,000 a month in a mortgage payment doesn’t mean you have to max it out now… Go a little lower than that so you give yourself that room.
Devon Viehman
regional vice president of the National Association of Realtors
A good agent should be able to answer all of these questions for you, Viehman said.
Viehman also recommends leaving room in your monthly budget to deal with the possibility of unexpected expenses.
“Just because you qualify for $3,000 a month in a mortgage payment doesn’t mean you have to max it out now,” he said. “Look for something you can get around $2,500 if $3,000 is your comfortable budget. Go a little lower than that so you give yourself that room.”
Tips for today’s homeowners
Homeowners can also consider switching insurance companies if their rates are too high.
“You should be interviewing insurance companies,” Viehman said. “Interview them all. Interview a few lenders. Interview a few brokers. Interview a few insurance agents because they all have different things to offer and you have to find what works best for you.”
Watch it video above to learn more about why home payments are skyrocketing and what homebuyers can do to help navigate this challenging market.
