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The growing reason people can't afford to own a home

Allie Kelly   

The growing reason people can't afford to own a home
  • Homeownership is becoming less attainable because of high mortgage rates and insurance costs.
  • The climate crisis is triggering insurance price hikes, as insurers anticipate more damage payouts.

Aspiring homeowners might be out of luck this year — and high mortgage rates are only part of the problem.

Rising insurance costs could keep homeownership out of reach for many. An April analysis from personal finance company Nerdwallet shows just how dire the situation is: Homeowners are now spending between $500 and $5,500 a year on insurance, depending on where they live.

According to the insurance comparison shopping site Insurify, overall home insurance costs have risen about 20% in the past two years and have the potential to rise another 6% in 2024.

As the economy recovers from the pandemic, the Federal Reserve has been working to fight inflation by raising interest rates, a strategy that has had a freezing effect on much of the housing market. Steep rates — which jumped to 7.1% for 30-year fixed-rate mortgages on April 18 — have made current homeowners less likely to sell and contributed to an ongoing shortage of affordable housing.

Adding to that, as the climate crisis escalates, it's likely homeowners insurance will only become more expensive. Destructive weather events are becoming more intense and more frequent, meaning insurers expect to pay out more damages, per Insurify.

The climate crisis is causing homeowners' insurance costs to rise

The average American homeowner pays $1,915 a year in insurance costs — about $160 a month — per NerdWallet. Insurance is an inevitable monthly budget item: It is often required by mortgage lenders or state governments.

This cost is just an estimate and can vary greatly depending on the size or location of a home. For instance, insurance rates increase in states with more severe natural disasters. In tornado-prone Oklahoma, for example, that annual cost jumps to $5,495 a year.

Major insurer State Farm announced last year that it will stop insuring new homeowners in California as the state faces risks of earthquakes, wildfires, and heat waves. Allstate has also limited coverage in the state.

Since 1980, there have been over 370 individual weather and climate disasters in the US that topped $1 billion in damage. About 130 of those events — storms, wildfires, floods, and extreme temperatures — happened in the last decade.

The property insurance industry lost nearly $26 billion in 2022, according to the most recent American Property Casualty Insurance Association data. To make up for losses, many companies are raising premiums.

Laura Longero, executive editor of insurance at the marketing firm QuinStreet, previously told Business Insider that she predicts costs will only go up for residents in high-disaster areas.

"Where people are going to end up living is going to determine how much they pay for a lot of things," she said. "If you're on the coast of California, Florida, or Texas, there are these more adverse weather events that are happening — those are going to affect homeowners rates."

This phenomenon is mirrored in car insurance prices, which have hit a 50-year high. The US Bureau of Labor Statistics reported that vehicle insurance costs were 20.3% higher in December 2023 than in December 2022, leading to higher premiums and deductibles for drivers.

Some Americans are choosing to rent or move due to high homeownership costs

Even as insurance rates continue to climb and price out some homeowners, other Americans are finding alternative ways to afford housing.

Some Gen Zers and millennials are still feeling optimistic about buying a home when inflation rates cool, while others are choosing to forgo expensive homeownership and renovate their rentals instead.

Rental prices are also rising in the US — by about 30% in the past five years, per NerdWallet — but rental insurance is far more affordable than it is for homeowners.

Van life and digital nomad living became especially popular during the pandemic, as some Americans chose to travel and work remotely instead of owning a home. In some cases, homeowners in high-climate-risk areas like Florida have also chosen to sell their houses and relocate.

Are you a homeowner paying a lot for insurance? Have you chosen to rent or move because of homeownership costs? Reach out to this reporter at allisonkelly@businessinsider.com.


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