Economy

It’s Not Just High Mortgage Rates Killing Homeowners

A year or so ago when life was good and mortgage rates were low, all was copasetic in the housing market. Fast forward to today, and mortgage rates have roughly doubled since their lows, in lock step with the Fed tightening, and don’t really show significant signs of abating any time soon. If you are a homeowner you know that your mortgage bill is the largest in your budget, but if you’re a new homeowner, you’re learning that that is just the beginning of the expenses associate with owning real estate. 

It’s only the American dream if you can afford it. If you have ever been “house-poor,” you know what we mean. According to a recent Bankrate survey, US homeowners are now paying an average of $18,118 a year on property taxes, homeowners’ insurance, maintenance, energy and various other expenses linked to owning a home. And you thought it was over at the closing. Far from it. That’s over $1,500 a month shelled out for some of the following.

One of the anxieties of these hidden costs are there variability. In regard to utilities, you have a general idea of what water and electric will be each month, but a particularly hot summer or cold winter will likely be more than you budgeting for. Hence the angst. The Bankrate survey goes on to state that the hidden costs associated with a typical, single-family home in the U.S. is roughly 26% higher compared with four years ago, which was $14,428 annually, or $1,202 a month. Add that on top of your mortgage payment and you begin to see why homeownership doesn’t always make sense. The national median mortgage payment in April was $2,256, up $144 or 6.8% from a year ago, according to the Mortgage Bankers Association.

With that said, the upside is that home prices and the equity within have risen as well during the same period. According to the Federal Reserve, the median inflation-adjusted net worth of U.S. homeowners increased by 37% between 2019 to 2022. Righteous bucks. That all looks good on paper, but the one problem is that if you want to tap into that equity it’s going to cost you. A second mortgage, HELOC, or other type of debt instrument tied to your house all come with a cost. Not just the high interest rates of today that you are trying to avoid, but also the closing costs and fees. Nothings easy.

Real estate values have been pushed higher largely as a result of supply-side issues. The number of homes on the market and being constructed is not at the level of demand. So what you’re seeing is that buyers are now purchasing older homes in much greater numbers that generally require more upkeep and maintenance. According to the U.S. Census Bureau, the median age of owner-occupied homes in the U.S. is about 40 years old. When a home reaches this age the likelihood of major system upgrades and repairs is high. A new or repaired roof, heating and air, as well as plumbing all are taxed at this age. 

If you’re interested, and to know surprise, the following are the states with the highest hidden homeownership costs.

If you’re looking to relocate and want a place with significantly lower hidden homeowner costs, check out the following.

In some places in the country currently the competition is fierce for properties, and new homeowners are often waiving their right to an inspection. While this may give you a leg up on the house purchase, you open up a can of worms not knowing the condition of the property. According to data from the NationalAssociation of Realtors (NAR), in April of this year, around 19% of buyers waived the home inspection, down from 22% one month prior and 21% a year earlier. Jessica Lautz, deputy chief economist at the National Association of Realtors goes on to say not having an inspection, “Definitely raises the risk of somebody moving into a house and not realizing that the [air conditioning] was about to go, or the water heater was on its last legs, or the roof needs to be replaced.”

The hidden costs are deleterious to homeowners when they put down more on the purchase of the home, and keep less or nothing available for repairs and maintenance. Data from Angi.com tells the story. In 2023, 46% of homeowners used cash from savings to cover home improvement projects. About 20% used credit cards, while 7% refinanced an existing loan and 5% used a home equity line of credit loan. This is one of the reasons why we are seeing consumer debt at all-time highs currently. The New York Fed’s quarterly Household Debt and Credit Survey (HHDC) shows that total consumer debt stands at $17.987 trillion as of the first quarter of 2024. That’s a record high. Americans owe $1.115 trillion in credit card debt as of the first quarter of 2024. That’s down from a record $1.129 trillion recorded in the fourth quarter of 2023.

So what’s the moral of the story? Ultimately, the responsibility of homeownership extends beyond just monthly mortgage payments, and it is essential to perform due diligence before venturing into homeownership and to properly manage these potential expenses. There will be hidden costs so budget the best you can.

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Economy