Property Taxes, Insurance Costs Squeeze Homeowners

By ERIN FLYNN JAY

Rising property taxes and insurance costs are putting pressure on homeowners across the country.

Last week, Newsweek reported that polling conducted for them by Redfield & Wilton Strategies found that property taxes and/or insurance costs have risen for most homeowners within the past year.

The poll found that 65% of Americans saw increased property taxes, while 69% paid more for home insurance. They surveyed 1,500 eligible voters on May 1, according to the report.

In April, ATTOM released its property tax analysis for 89.4 million U.S. single-family homes, which showed that $363.3 billion in property taxes were levied in 2023, up 6.9% from $339.8 billion in 2022.

The increase was almost double the 3.6% growth rate in 2022 – and the largest in the past five years.

Will these increased costs lead to financial trouble for homeowners?

“Increasing property taxes can have some impact for homeowners, although not an overwhelmingly substantial extent,” ATTOM CEO Rob Barber told The Mortgage Note.

“As taxes escalate, the monthly costs associated with homeownership rise, thereby imposing additional strain on household budgets. However, even in the scenario of a relatively sizable tax hike, such as 5%, the resulting increase in total monthly expenses is unlikely to force a significant portion of homeowners into foreclosure.”

For example, Barber said if a typical annual tax bill of $5,000 increases by 5%, it would result in an additional expense of only around $20 per month ($250 per year).

“Even in states with higher tax rates where the annual bill reaches $10,000, the extra monthly cost would be approximately $40,” said Barber. “While this may pose a challenge for some, it’s generally manageable for the majority of homeowners.”

Barber said the primary threat of foreclosure for most homeowners stems from factors such as job loss, unforeseen large expenses like medical bills, and the necessity for significant home repairs or vehicle replacement.

For prospective homebuyers or those looking to move, mortgage rates will be the primary determinant of affordability.

“Even a slight fluctuation in interest rates can translate to significant changes in monthly expenses, potentially influencing the ability to purchase a new home or upgrade to a larger one,” concluded Barber. “This aspect is likely to have the most significant impact on new homeowners or those in the process of relocating, either positively or negatively affecting their financial situation.”

While people determine property tax rates, severe weather due to climate change is driving up home insurance premiums.

Rick Sharga, president and CEO of CJ Patrick Company, said extreme weather events, especially in states like California and Florida, have caused massive losses for insurers, who subsequently need to raise premiums to help offset those losses.

“While wildfires in California and hurricane-driven flooding in Florida have caused rates in those states to double and even triple in many cases, extreme weather events are happening with increasing frequency across the country, and insurance rates are rising for homeowners in most markets,” said Sharga.

Repair costs are a major contributing factor. Sharga said that according to a recent report from Verisk, repair costs have risen by 67% in California over the past 10 years.

Sharga said lenders need to factor these higher premiums into their calculations when determining a borrower’s debt-to-income ratio to make sure that they actually qualify for a mortgage loan.

“Similarly, lenders and mortgage servicers need to pay attention to the impact higher premiums have on a current homeowner’s ability to pay their monthly mortgage, and in order to qualify those borrowers for potential refinance loans,” said Sharga.

Lenders also need to factor these costs into their decision about whether or not to issue mortgage loans in certain areas, Sharga said, since higher insurance premiums could ultimately cause property values to decline, and in some extreme cases, insurance is no longer even available.

The situation is most troublesome for homeowners who have seen both an increase in property taxes and insurance.

For homeowners who expected a predictable monthly payment for 30 years once they took out a mortgage – particularly those on a fixed income or at the lower end of the economic scale – Sharga said these increased costs can throw a household budget out of whack.

“While it’s unlikely that these taxes will go high enough to trigger a wave of foreclosures, they may make it difficult for certain homeowners to absorb these higher financial burdens, and potentially decide that they need to sell their homes because they can’t afford their higher payments,” said Sharga.

Unfortunately, homeownership costs are likely to continue to increase in 2024.

“Home prices continue to rise by about 6% year-over-year, mortgage rates are unlikely to come down meaningfully until late in the year (if at all), and property taxes and insurance costs will continue to climb,” predicted Sharga.

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