Homeowners in America: The Hidden Financial Burden of Maintaining a House
Buying a home is a significant financial commitment, often marked by high home prices and rising mortgage rates. However, the financial challenges do not end at the closing table. Homeownership is increasingly becoming a financial strain due to various hidden fees and expenses, making it more difficult for homeowners to manage their properties.
According to a recent study by Bankrate, the average annual cost of owning and maintaining a single-family home in the U.S. has surged to over $18,000. This represents a 26% increase from four years ago. These hidden costs encompass property taxes, homeowners insurance, home maintenance, and utility bills, including energy, internet, and cable services.
“Homeownership is an important wealth-builder for many Americans, but it ain’t cheap,” says Jeff Ostrowski, a Bankrate analyst. “These numbers show that the costs of owning a home are at the same level as buying a used car every year. While homeownership is worth the financial sacrifice, homeowners also need to be aware of the ongoing expenses that go along with owning property.”
Rising Costs of Homeownership
One of the primary factors driving up the cost of homeownership is the increasing price of homeowners insurance. This is particularly pronounced in coastal areas and regions prone to extreme weather. A ValuePenguin survey conducted in February revealed that nearly three-quarters of home insurance policyholders experienced rate hikes in 2023. Over one-third reported premium increases of 5% to 9.99%, leading to financial strain for many.
“Inflation, combined with higher home values, has also resulted in increased property taxes and insurance premiums,” explains Matt Dunbar, senior vice president of the southeast region at Churchill Mortgage. “Rising insurance costs are influenced by higher home values, increased construction expenses, and more frequent natural disasters. Together, these factors have made homeownership much more expensive than it was four years ago.”
The average cost of homeowners insurance in the U.S. is now $126 per month, or $1,516 annually, according to ValuePenguin. Some states have even higher rates, such as Colorado ($242), Nebraska ($213), Texas ($211), Kansas ($189), Florida ($184), and California ($153) for an average-sized home of about 2,100 square feet. These rates vary based on location and home size, adding to the complexity and unpredictability of homeownership costs.
“Everything is more expensive right now. Insurance is a big piece of most coastal states,” says Marilyn Wright, a global real-estate adviser at Premier Sotheby’s International Realty. “It is really important to review the average temperatures for the area you are considering as it will be a crucial piece of the puzzle for expenses, heating, cooling, and insurance.”
Additional Factors Increasing Costs
Beyond insurance, utility bills, maintenance fees, property taxes, and homeowners association (HOA) fees are significant contributors to the overall cost of homeownership. In some areas, particularly in Florida, HOA fees have become so burdensome that homeowners have been forced to lower their home prices to attract buyers.
The cumulative impact of these hidden costs makes homeownership unaffordable for many. Even those who can manage their monthly mortgage payments might find themselves financially stretched by additional expenses. “Imagine having to fork out an extra $1,500 every month when you’re already stretching to afford your dream home. It’s enough to make anyone rethink their budget,” says Angelica Ferguson VonDrak, a real-estate broker. “For a lot of folks, it means tightening the belt in other areas or even questioning if owning a home is doable at all.”
States with the highest homeownership costs, such as Hawaii, California, Massachusetts, New Jersey, and Connecticut, are primarily affected by high property values, taxes, and maintenance expenses. Maintenance costs, in particular, can be difficult to estimate and manage. VonDrak advises prospective homeowners to discuss potential maintenance needs with their realtor. “Wood siding? That will likely need to be painted or stained regularly over the years. Gutters? You need to clean those on an annual basis. Heating/cooling systems need to be serviced annually. You get the picture,” she says. “If you let things go for too long, you could be facing much larger problems and more expensive repairs later.”
Long-Term Ramifications
The escalating costs of homeownership could have significant long-term effects on the housing market. Rising expenses may deter potential buyers, slowing down the market and increasing the risk of foreclosure for current homeowners. “In the long term, these sustained high costs could limit mobility,” Dunbar warns. “People might choose to stay in their current homes to avoid the higher expenses associated with moving, potentially leading to stagnation in the housing market.”
Overall, while homeownership remains a key financial goal for many Americans, it is essential to be mindful of the ongoing and often hidden costs associated with it. Understanding and planning for these expenses can help ensure that the dream of owning a home does not become a financial nightmare.
