The 'hidden' housing costs sinking homeowners

Homebuyers tend to fixate on a few numbers in the hunt for their next place. The biggest one is the sticker price — the six or seven figures that can stir either exhilaration (if it's a steal) or dread (if it's a stretch). There's the hunk of cash they'll need for a down payment, and the mortgage rate that will determine how much the loan costs. Then there's the all-important monthly payment, the number that will hang over their heads for the next few decades.

Trawling Zillow for price cuts is practically a national pastime; tracking mortgage rates can turn into an equally engrossing, if slightly nerdier, obsession. While those headline figures suck up most of the oxygen, the other, often-overlooked ownership expenses — taxes, insurance, pesky homeowners' association fees, and incidentals like a leaky roof or kitchen renovation — have gotten pricier than ever. Homeowners of all kinds, even those who managed to snag historically cheap mortgages a few years ago, face staggering increases in these so-called "hidden costs" of homeownership. Insurance expenses have skyrocketed, driven not only by rising material and labor costs but also by wildfires in California and hurricanes along the East Coast. Property taxes have surged alongside rising home values, and a growing share of American homeowners belong to HOAs that demand a hefty chunk of change from their subjects.

"It's been dramatic," says Heather Long, the chief economist at Navy Federal Credit Union. Back in 2020, Long says, the credit union withheld about $400 a month on average from mortgage borrowers to cover their taxes and insurance costs. The typical amount these days is $600 — a 50% jump. Some clients have called to ask about getting personal loans to afford the additional hit.

"People generally don't plan for that fast of an increase," Long tells me.

Even homeowners on an otherwise strong financial footing are feeling the pain. A new analysis by the real estate software firm ICE Mortgage Technology found that homeowners who'd been slammed with steep insurance hikes were more likely to be past-due on their mortgage payments — including owners in the top tier of credit scores.

A slide in mortgage rates over the past year, from 7% to less than 6.5%, has made it easier for borrowers to stretch their budgets and more enticing for existing owners to refinance their loans for cheaper monthly payments. In many parts of the country, home prices have either flatlined or dipped, and bidding wars are less common. But the rise in these once ho-hum fees could throw a wrench into the well-laid plans of homeowners and hopeful buyers, even as the affordability picture improves.

Homeowners who scrimped and saved for their current spot may not have prepped for their non-mortgage costs to rise so dramatically. Prior to the COVID-19 pandemic, most homebuyers could expect regular but manageable increases in line items like insurance or taxes, says Steve Koller, a fellow at the Harvard Joint Center for Housing Studies who studies climate change and property insurance. The recent insurance hikes, well outstripping inflation, could change the affordability calculus for millions of future homebuyers.

"Maybe if you bought your home in 2016, you thought that your property insurance would increase at the same rate as the cost of goods and services across the economy," Koller tells me, "but that's just not the case."

Mortgage rates and home prices get most of the airtime when it comes to housing affordability: Cobbling together a down payment is often the biggest hurdle for buyers, and chipping away at the mortgage principal (plus interest) will typically make up the bulk of a homeowner's monthly payments. But other costs — utilities, maintenance, HOA fees, property taxes, and homeowner's insurance — account for a big chunk, too. In 2023, the typical mortgage holder devoted about 40% of their monthly housing payments to non-mortgage expenses, up from roughly 38.5% in 2021, the Federal Reserve Bank of Minneapolis found using the latest data from the census' American Housing Survey. Hikes in non-mortgage expenditures outpaced inflation by about 5.5% in that timeframe, while mortgage principal and interest costs actually declined slightly by 0.9% over that same period, likely the result of rock-bottom mortgage rates in 2021 and early 2022.

There's a healthy debate over whether these non-mortgage costs are truly "hidden" — after all, lenders evaluate home borrowers based on their ability to pay not only the principal and interest each month, but also taxes, insurance, and association fees (those in the industry often refer to this bundle of expenditures as "PITIA"). Unlike the principal-and-interest part of the mortgage, though — which holds steady thanks to the magic of the 30-year, fixed-rate loan — other costs can spike due to factors beyond a homeowner's control. Natural disasters drive up insurance costs or force owners onto pricier state-backed plans. Pipes break, home-repair materials get more expensive, and contractors' schedules fill up, turning even routine maintenance into a financial headache. HOA fees are spreading — almost 39% of existing single-family homes on the market last year were subject to them, compared to less than 31% in 2019, a Realtor.com study found.

"There's a lot more focus on home prices and mortgage rates," says Joel Berner, a senior economist at Realtor.com. "But really, beyond principal and interest, there are a lot of monthly fees that can make it hard for people to be able to afford a home, to buy it upfront, or to stay in the home that they already own."

Homeowners have seen especially steep markups in the post-COVID years. Rising home values have spurred property-tax increases of more than 31% since 2019, per ICE Mortgage Technology. Meanwhile, the average monthly insurance premium for a single-family home reached an all-time high of $201 last year, ICE found, a whopping 72% increase from 2019. In the previous five-year span, from 2014 to 2019, premiums rose by a mere 12.3%. In the past year alone, monthly premiums jumped 6.6%. That figure represents a bit of a glass-half-empty, half-full situation, says Andy Walden, head of mortgage and housing market research at ICE: While the year-over-year increase was higher than what homeowners saw before the pandemic, it was actually the smallest increase since 2020 and well below the massive, double-digit hikes from 2022 to 2024. In the world of property insurance, this is the kind of thing that passes for good news these days.

When I talked to Long, the economist at Navy Federal Credit Union, she had just received her new home insurance quote. "The increase was less than the year before," Long tells me, "but it was still up a double-digit number."

Part of the blame lies with pricier materials and labor shortages, which drive up the cost of patching up a damaged home. The real kicker, though, is that insurance coverage has also gotten more expensive due to the growing frequency of climate disasters and insurers' abandonment of some high-risk areas. One way to measure this is by looking at the cost per $1,000 of coverage, which strips out rising home values and focuses on how insurers price risk. The cost per $1,000 of coverage was up just 2% last year, to $6.21, according to ICE — "an improvement on the right side," Walden says, given that the same metric had grown by 14% in each of the two years prior, with Florida, the Gulf Coast, and Texas seeing the biggest jumps.

The increase in these secondary costs is squeezing homeowners across the board. Among the quintile of borrowers who spent the most on insurance last year (meaning that 13.3% or more of their total housing costs went to their premiums), almost 8% were late on their mortgage payments by at least a month, according to an ICE analysis of roughly 13 million single-family mortgages. On the flip side, borrowers spending the least on insurance (5.1% or less of their total housing costs) had a delinquency rate of only 2.9%. The trend held true across credit scores. Even among high achievers with scores of 720 or more — which puts them in the top quarter of homeowners by credit score — the most insurance-burdened borrowers were behind on mortgage payments at more than double the rate of the least insurance-burdened. The more you pay for insurance, the more likely you are to fall behind on your mortgage.

Wannabe buyers face a steeper climb to homeownership thanks to this cost pileup, but at least they're going in with open eyes — after the ugly experience of the past few years, future hikes shouldn't come as a surprise. The same can't be said for buyers who got in when the going was better. The rise in non-mortgage costs has delivered the biggest shock to people who bought their homes in 2021 or before, Long tells me, given that ancillary costs really spiked in the three years after. Anyone dipping their toe into the market in 2023 or 2024 "could see that things were already pretty high," Long says.

The flip side of the equation, though, is that homeowners also collected huge equity gains over that period — from $179,000 in 2019 to $254,000 in 2023 for the typical owner, an increase of about 42%, according to the Minneapolis Fed's analysis of census data.

"No one likes paying the cost, but everybody also likes the benefit of having more equity," Erik Hembre, a senior economist at the Federal Reserve Bank of Minneapolis. "And so to me, it's, 'Yeah, both of those things are kind of occurring at the same time.'"

On the insurance front, at least, owners and buyers can take steps to ward off future price increases. They can retrofit their homes to make them less vulnerable to natural disasters, says Koller, or choose less-risky locations to put down roots. But not every homeowner has the spare dollars to guard their homes against fires or floods, Koller adds, just as buyers may not have the luxury of choosing a location based on climate factors. And equity gains, while nice, don't always translate to immediate spending power — tapping into that pile of wealth often requires taking on new debt or selling the place.

The recent rise in "hidden" costs reveals the complex web of factors that can send homeowners' expenses spiraling long after they've locked down a mortgage: The global supply chains that influence materials prices, the immigration policy decisions that can empty worksites, and the fickle climate conditions that can send forest-fire embers traveling miles through the air. Line items like taxes and insurance may not be the first that come to mind in the house hunt, but they're poised to play an outsize role in housing affordability for years to come.

"How do we move forward knowing that there are these climate change impacts, these insurance cost burdens, all these non-mortgage cost burdens that are facing folks who are living in their homes," Koller tells me, "and they simply might not have the savings or income to adapt?"

James Rodriguez is a correspondent on Business Insider's Discourse team.

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