In 2022, Fannie Mae economists found that hidden costs make up more than half of a homeowner’s overall expense.
In general, any person who bought a home after 2022 has experienced financial troubles because of the high prices of real estate on top of high interest rates. The cost of buying a home has increased a lot in the last few years. However, people have also realized that the true cost of homeownership goes beyond monthly payments. Property taxes, utility bills, insurance premiums, and maintenance fees eat up anyone's budget, putting people’s financial stability at risk.
On top of high mortgages, many homeowners find themselves facing several financial burdens. Moreover, these hidden costs of homeownership are increasing for various reasons. In this article, we reveal why the hidden costs of homeownership are skyrocketing and how it affects homeowners.
What are the hidden costs of owning a home?
The purchase price of a house and mortgage payments are only a portion of the true cost of homeownership. Many homeowners are continually faced with hidden expenses, some of which may be overlooked or underestimated. Property taxes, maintenance, utilities, and insurance are the most significant non-mortgage costs that homeowners spend on.
Why are the hidden costs of homeownership going up?
Property Taxes
Between 2019 and 2022, the U.S. housing market saw a nearly 40% increase in prices, mostly due to the effects of the pandemic. Since property taxes are based on a home's assessed value, which tends to rise with home prices, the increase in property values directly contributes to higher property taxes.
Since 2019, the average property taxes of reassessed properties went up by 26.3%, averaging a 6.6% annual increase. Even among non-reassessed properties, average property taxes still rose by 18.4%, averaging a 5% annual increase (Corelogic, 2024).
Maintenance Fees
Labor and services have increased in price in the last few years. Along the same lines, homeowners' associations (HOAs) or condominium associations often ask for maintenance fees to cover the costs of maintaining common areas, landscaping, and facilities. These fees can increase over time due to inflation, rising labor, and material costs, or the need for extensive repairs or renovations. Ultimately, the burden of these rising costs falls upon the homeowners to cover.
Utility Bills
Utilities such as water, electricity, and gas are essential expenses for homeowners. The U.S. Information Administration predicts U.S. electricity demand to rise by 2.6% in 2024, depending on weather conditions. Fluctuations in energy prices, changes in consumption patterns, and infrastructure upgrades can all lead to higher utility bills for homeowners, adding to the overall cost of homeownership.
Insurance Premiums
Last year, S&P Global Market Intelligence reported that insurance companies aimed to increase homeowners' premiums by over 11% on average. Auto insurance premiums are climbing even faster, significantly surpassing overall inflation. Why are insurance premiums going up?
Increase in Natural Disasters - Insurance companies incur significant payouts after natural disasters such as floods, storms, hurricanes, and wildfires. Last year, the United States experienced around many severe storms, each with damages amounting to billions of dollars. The frequency and severity of these disasters contribute to higher insurance payouts, driving up premiums for all policyholders
Population Increase in Disaster-Prone Areas - Population growth and urbanization often lead to more people residing in disaster-prone regions, such as coastal areas prone to hurricanes or wildfire-prone regions. This increased population exposes more properties to the risk of natural disasters, leading insurers to adjust premiums to account for the heightened risk.
How does the increase in hidden costs affect homeowners?
Financial Strain - The increase in hidden costs puts an additional financial strain on homeowners. This leads to difficulties in managing household budgets, especially for those on fixed incomes (on social security) or with limited financial resources.
Budgeting Challenges - Fluctuating costs make it challenging for homeowners to budget effectively. Uncertainty regarding future expenses can create stress and anxiety, as homeowners struggle to anticipate and plan for rising costs.
Limited Financial Flexibility - Increased hidden costs may leave homeowners with limited financial flexibility for additional needs or unexpected expenses. Some may put aside essential home maintenance and repairs, potentially compromising the condition and value of the property in the long run.
For homeowners already struggling to meet rising costs, unexpected financial setbacks or emergencies can affect housing stability. In extreme cases, some may even face foreclosures or forced sale of their homes. Moreover, the rising hidden costs contribute to the decline of housing affordability, especially for first-time buyers and low-income families.
Conclusion
In 2024, aspiring homeowners should approach the home-buying process with careful consideration. Beyond upfront expenses like the down payment and mortgage, prospective buyers must factor in the ongoing hidden costs of homeownership. Consider consulting with real estate agents, financial advisors, and insurance professionals who can provide valuable insights and help you make informed decisions. By taking a proactive approach to understanding and managing hidden homeownership costs, you can position yourself for a more successful and stable homeownership journey.
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