Rising property taxes and insurance premiums are putting financial pressure on homeowners nationwide, according to recent reports.
A recent poll by Redfield & Wilton Strategies for Newsweek found that in the past year, 65% of Americans have experienced increased property taxes, and 69% have faced higher home insurance costs. This survey, conducted on May 1 with 1,500 eligible voters, highlights the growing burden on homeowners.
In April, ATTOM released an analysis revealing that property taxes for 89.4 million U.S. single-family homes reached $363.3 billion in 2023, marking a 6.9% increase from the previous year’s $339.8 billion. This rise is nearly double the 3.6% growth rate seen in 2022 and represents the largest increase in the past five years.
Despite these increases, ATTOM CEO Rob Barber explained that while rising property taxes add to homeowners' monthly expenses, they are unlikely to cause significant financial hardship for most. “Even with a sizable tax hike, such as 5%, the increase in monthly costs is manageable for the majority of homeowners,” said Barber.
For instance, a 5% increase on an annual tax bill of $5,000 would mean an additional $20 per month, or $250 per year. In states with higher tax rates, where annual bills might reach $10,000, the extra cost would be approximately $40 per month.
However, Barber noted that major financial threats to homeowners include job loss, unexpected large expenses like medical bills, and essential home or vehicle repairs. For prospective homebuyers, mortgage rates are the primary factor affecting affordability. “Even slight changes in interest rates can significantly impact monthly expenses,” Barber added.
Climate change is also driving up home insurance premiums due to more frequent and severe weather events. Rick Sharga, president and CEO of CJ Patrick Company, noted that extreme weather in states like California and Florida has led to substantial losses for insurers, who then raise premiums to offset these costs. “Rates in these states have doubled or even tripled due to wildfires and hurricane-driven flooding,” Sharga said. “Insurance rates are rising in most markets as extreme weather events become more common.”
Additionally, repair costs have surged. Sharga pointed out that repair costs in California have risen by 67% over the past decade. These higher costs affect lenders’ calculations when determining borrowers' debt-to-income ratios for mortgage qualifications.
Lenders and mortgage servicers must consider the impact of higher premiums on homeowners’ ability to pay their monthly mortgage and to qualify for refinance loans. Sharga emphasized the need for lenders to account for these costs when deciding whether to issue mortgage loans in areas with high insurance premiums, as these could affect property values and, in extreme cases, make insurance unavailable.
The financial strain is especially challenging for homeowners facing both increased property taxes and insurance premiums. For those on fixed incomes or with lower economic status, these rising costs can disrupt household budgets significantly. “While these taxes are unlikely to cause widespread foreclosures, they could force some homeowners to sell their homes due to the inability to manage higher payments,” Sharga explained.
Looking ahead, homeownership costs are expected to continue rising in 2024. Sharga predicts that home prices will grow by about 6% year-over-year, mortgage rates will likely remain high until late in the year, and property taxes and insurance costs will keep climbing.
Homeowners and potential buyers should be prepared for these financial challenges and plan accordingly to manage their budgets and maintain their financial stability.