The Very Different Future for Homeownership

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The Very Different Future for Homeownership

It seems the cost of everything is going up. Your grocery bill is certainly higher. You’re paying more for gas right now.  Today I want to specifically focus on how the costs of homeownership are changing, and how homeownership might look different in the future. A recent headline in the WSJ read, “The Hidden Costs of Home ownership are skyrocketing.” We already know that interest rates are higher, but when the article refers to “hidden costs” what does it mean? It’s talking specifically about taxes, maintenance, and insurance. I want us to take a closer look at each of these categories and then we’ll talk about how home ownership may change in the future.

Let’s start with taxes- If you’re a homeowner, you know that you have real estate taxes that you pay to the city, the county, or both. According to the Journal, the average property tax in the U.S for single family homes was $4062 per year. That’s up 4% from the previous year. But if you live in a major metropolitan area, you would more likely have seen double digit percentage increases from the previous year. Real estate taxes are so high in some prestigious public-school districts that they actually rival private school tuition costs. We also know that certain states are notorious for high tax rates. But even if tax rates themselves are not going up where you live, when tax appraisals are updated, the higher values lead to higher taxes. So taxes are becoming a more significant cost of homeownership.

Let’s move on and talk about maintenance. You and I both know there’s always something that needs fixing if you are a homeowner. Air Conditioners only last so long. Pipe break. Things wear out. Not to mention that sometimes we just have a desire to freshen the place up – maybe replace that 1980’s wallpaper we still have. Actually, the journal reports that over half of the inventory of homes in the US that are owner-occupied were built prior to 1980. That’s a lot of deferred maintenance, and that maintenance costs money. And although the cost of materials seems to have leveled off for the time being, the cost of labor is higher than ever. With the lack of people working in the building trades, the repairs often lead to sticker shock for many homeowners. So, just keeping up your home costs more than ever.

Lastly, we’ll highlight insurance. Once again, with home values increasing, the cost of insuring those homes increases. That’s partly because you are not just insuring the current value of your home, but the cost of rebuilding your home, which could easily be greater than its current value. In addition, insurers have experienced a blitz of natural disaster related claims that have left some of them losing money, a rare thing for insurance companies. As a result, the Journal reports rates rising by more than 10% in 19 states. You’ve probably noticed this on your last homeowner’s insurance renewal. These aren’t greedy insurance companies trying to squeeze more out of the consumer, they are companies just trying to salvage a profit. The cost of insurance is taking such a bite out of homeowner’s income that Kiplinger.com reports that homeowners with insurance has dropped from 95% in 2019 to 85% in 2023. That’s a huge number of homeowners “swimming naked” so to speak.    

So with all of these costs to homeownership increasing, what will homeownership look like in the future. Here are my best guesses:

The great migration will continue. High tax states will continue to lose people to low tax states. The southeast will continue to grow as people look for affordability. TN will be one of the states that has more people moving in than moving out. It’s in the top 10 of just about any population growth chart for recent years you can find. People continue to leave California, Illinois, and New York, and many of them will come to West TN. Those states, counties and cities with favorable tax structures relative to the rest of the country stand to benefit. 

We’ll see more homeowners becoming Do-It Yourselfers and more students skipping college to go directly into trades. A homeowner today isn’t just facing higher costs to build a fence, or repair a toilet, they also face a long wait because of the backlog of customers in line. Some homeowners will get tired of the wait and the expense, and just watch You Tube to figure out how to fix things around the home. Technical schools will have more and more demand as 18-year-olds realize they can do quite well working with their hands. The entire trades industry is going to go through its greatest change in decades.

More and more people will carry catastrophic insurance coverage only. While some will take the risk and not carry any insurance, more people will opt for increasing deductibles and skinnier coverage which basically only covers total or major loss due to fire or tornado damage. Because of the frequency of wind damage in TN, you might even see separate deductibles based on the peril of your insurance. For example, you might have a $1,000 deductible for fire, but a $10,000 deductible on wind damage. Why? Because fires are statistically rare, but wind damage is something we see quite often in West TN.

More people will choose to rent. Yes, rents are high in this environment. But for those on a fixed income, rents provide certainty. When you are renting, you don’t have to worry about taxes, insurance, or maintenance. Renting has already lost its stigma in major metropolitan areas, and this will also happen in more rural areas. Also, in the post-Covid economy – renting offers portability and flexibility, and many young people will opt for this rather than taking on the costs and commitments of homeownership.

Fewer people will sell their houses unless there is death, divorce, or job change. Because all of these other homeownership costs have gone up, fewer households can afford to give up that 3% mortgage for one that might be twice as much or more. The results will be fewer homes for sale and home values that stay pretty stable.

Are you in the market to buy a home? Did you know that we have a host of solutions for homebuyers – one of them being loans that actually stay local. If you want to work with a bank, not just at the closing table but beyond, you really should check us out. Start your financial conversation with us by visiting foundationbank.org. We hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. Until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of McKenzie Banking Company / Foundation Bank on April 16, 2024. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. MBC/Foundation Bank is an Equal Housing Lender, Member FDIC.