Rising Insurance Rates May Stop Many From Purchasing Their Dream Home

Published by Forbes.com | May 31, 2024

With double-digit home insurance rate increases, some potential homebuyers may find it difficult to purchase a home. Here's what you need to know.

It comes as no surprise that if you plan on purchasing a house, you’ll also need to get home insurance. However, the cost of homeowners insurance may come as a shock.

Homeowners pay over $3,000 a year in property insurance, according to data by Bank of America. And BofA notes that this median household payment represents 4.5% of household income.

And according to data by S&P Global Market Intelligence, through December 29 2023, homeowners insurance increased by 11.3%. In 25 states, the rate change was at least 10% – and sometimes, it was significantly higher.

While these one-year increases seem alarming, home insurance rates have been rising for a while.

What’s Causing The Rise in Homeowners Insurance Rates?

Home insurance rates can increase for a variety of factors, including location, the property’s value, coverage, and the insurer. However, Rainy Hake Austin, president of The Agency, tells me that insurance rates have been increasing steadily over the past few years due to factors such as increased natural disasters, rising construction costs, and higher claim payouts.

“In markets like Los Angeles and Aspen, home insurance rates are seeing premium spikes influenced by several factors unique to the area, including the risk of earthquakes, wildfires, and other natural disasters, as well as the cost of living and property values.” Since 2009, Austin says California has witnessed a 335% surge in buildings lost to wildfires — which resulted in a 270% rise in associated costs.

“In markets throughout Florida and Louisiana, the state saw home insurance costs rise due to destructive hurricanes,” he adds. “We are seeing insurance costs in high-risk locations, specifically in Florida and California, cost hundreds of thousands of dollars per year, and have seen it triple in price in many of these high-risk locations since 2020.”

In March 2023, State Farm issued a press release stating that (effective May 27, 2023) it would no longer accept new applications for homeowners insurance in California. The company credited this decision to an increase in catastrophes, and construction costs that outpaced inflation. Austin believes the decision was made in anticipation of the 2024 wildfire season.

“Approximately 72,000 property holders are anticipated to be affected, with nearly 70 percent of these properties located in ZIP codes where the median sale price exceeded $1 million last year,” he says.

In affluent areas of California such as Bel-Air, Beverly Hills, Montecito, and even Napa Valley, Austin says that skyrocketing insurance rates are making prospective buyers think twice about purchasing new homes or even opting out of home insurance altogether.

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