Housing Predicament: Supply, Prices, Mortgages, Maintenance, Utilities, Insurance

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Home prices are going up. But so are mortgage rates, property insurance, and maintenance. Here’s how to take a reading on the whole picture.

A recent Bankrate study found homeowners are forking over about $18,120 per year for the combination of utilities, maintenance, and property taxes and insurance compared to about $14,420 four years ago.

This is an especially expensive financial burden because homeownership today means much higher prices for homes and much higher interest rates on the mortgages to finance the home purchase. The housing market today is moribund, almost paralyzed, with few sellers and few buyers, as well as few homes available for sale. Sellers with historically low mortgages don’t want to give up their 2–3 percent mortgage rate and sell their home, knowing the next home will come with a mortgage rate more than twice that amount.

Jeff Ostrowski, analyst at Bankrate, said that the main drivers of the increasing cost of homeownership expenses are maintenance and property insurance. Extreme weather has been a major factor in the jump in insurance premiums. That means certain areas prone to fires, flooding, and hurricanes are seeing the largest insurance cost increases. In many cases, homeowners simply can no longer afford to buy the insurance.

Home insurance rates leaped 11.3 percent in the United States last year, according to S&P Global. The U.S. homeowner’s insurance industry lost over $100 billion last year with the severe storms, hurricanes, and wildfires. Inflation made the rebuilding effort additionally much pricier.

The top states where the cost of owning and maintaining a home are:

• California ($28,790)
• Massachusetts ($26,313)
• New Jersey ($25,573)
• Connecticut ($23,515)

The lowest-cost states are:

• Kentucky ($11,559)
• Arkansas ($11,692)
• Mississippi ($11,881)

The offset, however, is that home values have risen significantly since 2020 and that increase in equity can be borrowed against as cash is needed. Median inflation-adjusted net worth went up 37 percent between 2019 to 2022, according to a report from the Federal Reserve.

Source: US Federal Housing Finance Agency

Home prices ramped on average 40 percent in just a two-year period—and they remain high although the rate of price increases has slowed dramatically in most parts of the country recently. Let’s look at a typical average home price and mortgage payment about four years ago when the pandemic began, compared to today:

• New home median sales price in April 2020: $246,334
• Mortgage payment with 20 percent down: $896
• New home median sales price in January 2024: $420,700
• Mortgage payment with 20 percent down: $1,596

The wages and compensation threshold required to comfortably afford to buy a home has risen 80 percent, to roughly $106,500. That exceeds the median household income which has only grown 23 percent over the same period, to $81,000, according to the American Community Survey from the Bureau of Labor Statistics.

Is Renting a Better Option Today?

Renting a home provides much more flexibility. However, if you have returned to the office, either full time or partially, and assume you’ll remain in your current job for a few years, then buying a home might be the better long-term option. If you plan to stay in the home for five to seven years, try to make buying a home work for you. The decision between renting and buying a house depends on several important considerations:

• Flexibility—As noted above, renting does provide more flexibility. If you anticipate changes in your job or lifestyle in the short term, renting might be a better choice.
• Time horizon—Also, a good rule of thumb mentioned is that if you plan to stay in the home for five to seven years, buying becomes perhaps the wiser option.
• Cost comparison—Long-term renting is currently cheaper than homeownership in many cities. On average, renters spend slightly less over 30 years compared to homeowners.
• Monthly costs—Typically, renters pay about 40 percent less per month than first-time homeowners across major metropolitan areas in the United States This does vary widely across different locations, so you must analyze your target location specifically.

Finally, let’s turn to the dynamics concerning the residential market today. Prices are set based upon the demand, supply, cost and other location-based factors such as ocean views, safe neighborhoods and good schools. Today, however, we simply don’t have what we can call an unfettered market-based price-setting mechanism. Here’s why:

• The United States is more than 3 million homes short of the demand from potential homebuyers. Pandemic-related supply-chain problems have not yet all cleared. Increasing costs of materials and labor are adding tens of thousands of dollars in costs to the typical house. Since the housing bubble collapse in 2008 we haven’t completely returned to a healthy and balanced housing market.
• Higher mortgage rates can indeed shut out potential homebuyers in several ways:
  
  
  
  • Reduced affordability—When interest rates rise, the cost of borrowing goes up. Monthly mortgage payments can become expensive. Buyers who were previously on the very cusp of affordability may find that they’re priced out of the market, meaning fewer interested buyers.
  • Slower home sales—The combination of high home prices and mortgage interest rates slow home sales volume, as potential buyers become discouraged.
  • Limited inventory—As rates rise, existing homeowners with lower mortgage rates become less likely to move. Boomers have little motivation and even less incentive to sell their homes that currently have 2–3 percent mortgages only to have to take on a new mortgage at over twice as much in terms of interest rates.
  • Eroded affordability—With every aspect of home ownership costs increasing, the pool of potential motivated buyers continues to shrink.

Therefore, with stunted and limited housing supply, rising costs of homes, mortgage rates, insurance, property taxes, and maintenance, the market is moribund, there just isn’t much action given such low volume. That means the market itself is subject to change markedly when these factors settle into a trend of more homes available for sale, lower prices, and reduced interest rates. You may be wise to be patient and wait until these unusually high costs all around finally dissipate and begin to come down.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.