WSJ Your Money Briefing - Some Homeowners’ Taxes and Insurance Cost More Than Their Mortgage

Episode Date: December 31, 2024

In September, 32% of the average single-family mortgage payment went to property taxes and home insurance, the highest rate ever for data going back to 2014, according to Intercontinental Exchange. Wall Street Journal housing reporter Nicole Friedman joins host J.R. Whalen to discuss what’s driving up expenses. Sign up for the WSJ's free Markets A.M. newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

You let him try violin because you love him. And if you love him that much, love him enough to make sure he's buckled up and in the backseat. Find out more at NHTSA.gov slash the right seat. Brought to you by the National Highway Traffic Safety Administration and the Ad Council. Here's your money briefing for Tuesday, December 31st. I'm J.R. Whalen for the Wall Street Journal. Many prospective home buyers are finding the numbers are stacked against them. Property taxes and home insurance costs are in some cases bigger than their monthly mortgage payments. A lot of those people might already be stretched thin in terms of what they can afford.

And so if those other costs end up climbing more than they expect, that could make it hard for those homeowners to stay in their homes or if they're hoping to refinance if mortgage rates go down, it might make it harder for them to qualify. Wall Street Journal housing reporter Nicole Friedman will join us after the break. Get groceries delivered across the GTA from real Canadian Superstore with PC Express. Shop online for super prices and super savings. Try it today and get up to $75 in PC Optimum Points. Visit superstore.ca to get started. The cost of repairs and rebuilding following natural disasters in certain parts of the

country is affecting homeowners nationwide. Wall Street Journal reporter Nicole Friedman joins me. Nicole, how much have property tax and home insurance costs risen recently? The latest analysis from Intercontinental Exchange shows that for homeowners who pay their taxes and insurance as part of their mortgage, they're paying 32 percent of their overall mortgage payment to property taxes and home insurance. And that's the biggest proportion of the total payment on record in data going back 10 years. There have been a lot of natural disasters, not just the huge hurricanes and wildfires in recent years that have made national news, but there's also smaller natural disasters like hailstorms and tornadoes.

And those all add up for home insurers and the cost of those disasters has really climbed, especially as more people have moved to disaster prone places. And insurers are also facing a higher cost for reinsurance, which is the insurance that they purchase. And so that also has been passed along to homeowners in the form of higher premiums. And it just costs more to repair and rebuild homes than it used to because the cost of labor and materials has gone up. And so all of that leads to higher home insurance prices, especially in disaster-prone areas

like Florida and California. But it's also affecting homeowners all over the country. How has the rise in home insurance premiums impacted people's ability to pay their mortgage? When they buy a home and they take out a mortgage, that payment is fixed for 30 years. But these other costs, like home insurance and property taxes, don't stay fixed, and those can change from year to year. And so homeowners, they do expect those costs to go up over time. But if those costs are rising more dramatically

than they expected, that can take a big bite out of their budget. If they're having to spend more money on insurance and taxes, that's less money that they can spend anywhere else. Who's affected the most by this? So the households that are really most affected are those that are already at the edge of what they can afford to spend. Homeowners who are retired and have fixed incomes might really be hit by

these unexpected rising insurance or property tax costs. And another group that might be exposed here is people that bought their homes in the last year or two when home prices have been at a record and mortgage rates have been high. And a lot of those people might already be stretched thin in terms of what they can afford. They might have just barely managed to scrape it together to buy a home. And so if those other costs end up climbing more than they expect, that could make it hard for those homeowners to stay in their homes or if they're hoping to refinance if mortgage rates go down, it might make it harder for them to qualify for a refinance. How do the higher costs affect people who are in the market for a home? If these costs are going up, that lowers the price of the home that people can

afford if more of their monthly payment is going to taxes and insurance. And it's something that buyers are having to take into account earlier in the process. It used to be that you would put in an offer and go under contract, and then at the very last minute you'd get an insurance quote. But now a lot of real estate agents are saying we're talking to buyers about thinking about insurance upfront to really figure out what that cost might be because it might really affect the amount that you're willing to spend on the home. But in general, it's a very difficult time for home buying affordability because home

prices are high, mortgage rates are high, and this just adds to that burden. And so these higher property tax and home insurance costs are just another thing making it difficult for home buyers to get into the market and keeping a lot of prospective buyers on the sidelines. As these costs rise, how is it impacting the types of homes that people are shopping for and the location? In terms of property taxes, there can be major differences town by town, and that's something that buyers take into account. And in terms of home insurance, it can even be block by block.

Looking just a couple blocks inland or farther from a source of water or a forest can make a big difference in terms of whether insurance companies are willing to insure that home and at what price. And so it does affect how home buyers are thinking of different properties and more real estate listing websites are starting to show some of that risk data on their listing sites to help inform buyers whether a certain property maybe is

at a high risk of flood or a fire damage to help them assess what they're willing to take on and what their insurance costs might be. Is the outlook any better for 2025? Home affordability could get a little bit better in 2025 if mortgage rates come down. That would make a big difference for affordability. Unfortunately these insurance and property tax costs are less likely to come down in the short term. Certainly home insurance has really been in a one-way trajectory in recent years going

up. Property taxes it varies a bit more by municipality and by state, but generally the trend there has been up as well. That's WSJ reporter Nicole Friedman and that's it for your money briefing. We'll be off tomorrow for New Year's Day, but we'll be back on Thursday. This episode was produced by me, JR Whalen, with supervising producer Melanie Roy. Thanks for listening.