Do Rising Insurance Costs Threaten Homeownership?

Depending on where the house is located, carriers not only have increased insurance rates but some companies are refusing to insure them.

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Natural disasters have increased weather-related insurance claims and driven up homeowners’ insurance rates. The cost of rebuilding has also impacted rates. When buying a home, many are taking a hard look at the cost of insurance and the mortgage, and finding they can’t afford them. The question is: Can you afford homeowner’s insurance?

Prospective buyers aren’t the only ones feeling the strain; current homeowners are starting to forgo property insurance, and according to the Bipartisan Policy Center, in 2023, 12 percent were uninsured.

Insurance Rates Rising

Home prices are elevated, and interest rates are high. According to Freddie Mac, a 30-year fixed rate is 6.76 percent. That makes homeownership tough for prospective buyers. But there’s a hidden cost that’s catching many people off guard.

Depending on where the house is located, carriers not only have increased insurance rates but some companies are refusing to insure them. Prices are going up even in less disaster-prone areas.

MarketWatch reported April 25 that homeowners’ insurance premiums have increased 11.5 percent since 2022. The average cost of homeowners insurance is $2,728 annually, or $227 monthly.

But that’s the average. It’s higher in some areas. For example, these states have the highest insurance premiums in the country.

• Louisiana: $6,479
• Oklahoma: $6,472
• Nebraska: $6,605
• Texas: $5,162
• Mississippi: $4,549

The states are prone to severe weather like tornadoes and hurricanes.

New Affordable Housing Impacted by Insurance Rates

Families aren’t the only ones struggling with high insurance costs. Developers also face challenges.

Developers who build affordable housing are facing insurance costs that increase overall construction and operational expenses for such housing projects.

Insurance must be secured for the construction phase as well as property management. And with costs increasing in high-risk areas, many projects for affordable housing are nonviable. The cost passed on to the customer would be astronomical.

According to Insurance Thought Leadership, from 2020 to 2023, multifamily insurance rates increased by an average of 13 percent annually. Many developers couldn’t find insurers willing to provide coverage, leading to costly delays and project cancellations.

Lenders and investors analyze risks when considering funding housing projects. Skyrocketing insurance rates create uncertainty. Premiums eat into projected profits, so financial institutions may hesitate to approve loans.

The result is that affordable housing projects are not as attractive to developers. There’s less profit to be made. So instead, they move toward more profitable, higher-income developments.

This puts a bigger squeeze on middle-class families trying to find affordable housing.

Factors That Influence Homeowners’ Insurance Rates

Several factors determine a homeowner’s insurance premiums. For example, the condition of the roof, the policy deductible, the age of the house, the owner’s credit history, etc. But you have control over most of these factors. You can replace the roof and improve your credit.

Some factors that may be beyond your control include, cost of living, natural disasters, and the crime rate.

Cost of Living

Insurance is there to make you whole again after a loss. But the cost of making you whole is increasing yearly.

For example, the cost of living affects how much it will cost to replace your house if there is a loss. According to the National Association of Home Builders (NAHB), in 2024, construction costs accounted for 64.4 percent of the average price of a new home. In contrast, they were 60.8 percent in 2022.

This latest figure marks a record high in construction costs since it started being tracked in 1998.

Insurance companies factor in these construction costs when determining your premium.

Severe Weather Factors in Rate Hikes

According to Forbes, in the past five years, the United States has experienced an average of $18 billion in losses due to climate disasters like hurricanes, fire, and wind.

This number doesn’t take into account the damage from the Los Angeles fires. Those insured losses are estimated to be at $30 billion, according to Claims Journal. Keep in mind that these are insured losses, and this figure doesn’t represent uninsured or underinsured losses.

Wind or tornado losses have hit the insurance industry hard. Reinsurance News reports that over the past two seasons (2023-2024), insured losses due to severe convective storms (SCS) have surpassed $123 billion.

Large hail typically accounts for 50 to 80 percent of the insured SCS losses. However, recent events have shown the substantial impact of tornadoes and straight-line winds. The damage is particularly bad in densely populated areas.

High Crime Areas Influence Rates

Family Financial Insurance Group explains that insurance companies analyze local crime rates as one factor in determining premiums. Homes in areas with frequent theft, vandalism, or break-ins are considered high risk and difficult to protect. This can lead to higher premiums.

Homeownership Increasingly Out of Reach

According to First Financial Bank, traditionally, no more than 30 percent of your monthly net income should go toward housing. But with the combination of high mortgages and inflated homeowners’ insurance, this number may no longer be viable.

Those looking for affordable housing may find little to choose from if developers can’t afford insurance for projects. Developers will instead cater to high-end homes with bigger profit margins.

With the average insurance exceeding $2,000 annually, and a 6 percent rise in average premiums expected by the year’s end, the American dream of homeownership may be fading.

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