Hidden costs of homeownership jump, tightening the squeeze on buyers

The hidden costs of homeownership are reaching nearly $16,000 per year nationwide, underscoring the ongoing affordability crisis crippling potential buyers. 

A new analysis from real estate marketplace Zillow and Thumbtack, an online marketplace for local services, found that insurance, maintenance and property tax can cost the average homeowner $15,979 per year. Maintenance costs account for $10,946 of that, while about $2,003 goes toward homeowners insurance and $3,030 toward property taxes, according to the November analysis.

Collectively, those housing costs jumped 4.7% in the past year, outpacing household incomes, which rose just 3.8%, according to the report. However, coastal metros are getting squeezed the most, with costs in New York City reaching $24,381. In San Francisco, costs reached $22,781, which is slightly higher than the $21,320 reported in Boston.

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Part of the issue, according to the analysis, is that insurance premiums have risen 48% nationwide since February 2020, topping $2,000 annually on the typical home. However, Florida, in particular, is getting hammered by insurance premiums due to the state’s high hurricane and flood risks, rising rebuilding costs and expensive reinsurance for insurers. On top of that, fraud and lawsuits have driven up legal costs and many insurers have left the state, which is reducing competition and driving up prices. 

In Miami, premiums average $4,607 per year, up 72% in the past five years, according to the analysis. Jacksonville also saw a similar spike with premiums rising 72%, followed by Tampa at 69% and Orlando at 68%. 

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Insurance costs also jumped significantly outside the Sunshine State. The analysis showed costs were up 79% in New Orleans, 59% in Sacramento, 58% in Atlanta and 56% in Riverside, California.

Zillow senior economist Kara Ng said insurance costs are rising nearly twice as fast as homeowner incomes, creating a barrier to entry for first-time buyers and families already stretched thin.

“Buyers who are already facing affordability challenges in today’s market need to understand and budget for these less obvious expenses when calculating how much home they can truly afford,” Ng said.  

Treasury Secretary Scott Bessent said in August that one of his top priorities is addressing the U.S. housing affordability crisis. 

“We are really going to work on this housing affordability crisis. That’s one of my big projects for the fall,” Bessent said during an interview on “Mornings with Maria.”

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Bessent said that the White House is exploring how to monetize Fannie Mae and Freddie Mac, which could involve selling all or part of the government’s stake in the enterprises. Fannie Mae and Freddie Mac play a critical role in the home financing industry and have been under federal conservatorship since the 2008 financial crisis. Bessent said the administration is looking at how to get the best value for taxpayers when it comes to Fannie Mae and Freddie Mac, and how to keep mortgage rates from rising – or lower them – in order to fix the persisting affordability crisis.  

The report also suggests that buyers plan for maintenance costs early and to reconsider the type of home they are looking to buy. For instance, rather than a large single-family home, budget-conscious buyers can explore more affordable options, such as townhomes or condos, which may offer less upkeep.

Buyers can also consider looking into new construction. While it may cost more upfront, a newly built home typically requires less maintenance in the near term.