As home prices and the cost to maintain it rise faster than incomes, homebuyers and homeowners struggle to keep up!
With inflation hitting record highs, many people are questioning whether buying a home is still a wise investment. Home prices have been increasing faster than incomes, which can be challenging for homeowners. As home values go up, so do maintenance costs.
According to a 2023 analysis of U.S. Census data by the Chamber of Commerce, over 25% of homeowners with mortgages spend more than 30% of their income on housing costs, classifying them as “cost-burdened.”
Devon Viehman, a regional vice president for the National Association of Realtors, noted that many homebuyers are surprised when their monthly payments change. Two expenses that often catch homeowners off guard are property taxes and insurance premiums.
“What many have failed to anticipate is the rise in both property taxes – and that’s correlated to the rise in the value of their home, something that at some level helps them – as well as the increased cost of paying for that insurance”, said Mark Hamrick, senior economic analyst at Bankrate.
Rising Expenses
According to a 2022 report from the National Association of Realtors, on average, single-family homeowners gain $225,000 in wealth over a decade. However, this wealth is mostly “on paper”, and homeowners only have access to it when they sell their house.
Property taxes tend to rise with home values. A study by CoreLogic found that homeowners whose properties were reassessed between 2019 and 2023 saw a median tax increase of 25%, with annual taxes increasing by over $600 on average.
Home insurance costs are also rising. Insurify, an insurance comparison company, reported a 20% increase in average home insurance premiums from 2021 to 2023, with rates expected to rise another 6% by the end of 2024. States like Florida, Louisiana, Texas, and Colorado have seen the most significant increases due to extreme weather events, with Florida’s annual home insurance rate averaging nearly $11,000 in 2023 – much higher than the national average.
Tips for Homebuyers
Viehman advises potential homebuyers to consult with their real estate agent to understand all costs associated with owning a home, such as property taxes, insurance, and utilities. She also suggests checking state laws for any limits on annual property tax increases. Additionally, homebuyers should budget conservatively.
“Just because you qualify for $3,000 a month in a mortgage payment doesn’t mean you should max it out right now. Look for something where you can get in around $2,500 if $3,000 is your comfortable budget. Go a little lower than that so that you give yourself that room”, she said.
Tips for Homeowners
The Consumer Financial Protection Bureau (CFPB) recommends contacting the Department of Housing and Urban Development (HUD) for potential assistance programs. Homeowners should also communicate with their mortgage servicer to discuss their situation and explore options like repayment plans or loan modifications. Switching insurance companies can also help manage costs.
“You should be interviewing insurance companies. Interview everyone. Interview a few lenders. Interview a few realtors. Interview a few insurance agents because they all have different things that they offer, and you need to find what works best for you”, Viehman said.