Rising home valuations could negatively impact homeowners' finances.

• As home values increase, the cost of maintaining them also rises, posing a challenge for homeowners.
• The increase in property taxes and home insurance rates is due to inflation and the rise in catastrophic weather events.
• A 2023 analysis by the Chamber of Commerce found that more than 1 in 4 homeowners with mortgages are considered "cost-burdened."

Record inflation may have people questioning whether homeownership is still a good investment.

As home values increase, the cost of maintaining them also rises, posing a challenge for homeowners.

A 2023 analysis of U.S. Census data by the Chamber of Commerce found that more than 1 in 4 homeowners with mortgages are "cost-burdened," meaning they spend more than 30% of their income on housing costs.

Devon Viehman, regional vice president for the National Association of Realtors, stated that a significant number of individuals purchase a home without comprehending that their monthly payments may fluctuate.

Changes in two expenses in particular tend to surprise people, experts say.

Mark Hamrick, senior economic analyst at Bankrate, stated that many homeowners have not anticipated the increase in both property taxes and insurance costs, which are linked to the rise in the value of their homes.

'Paper' wealth and rising expenses

During a 10-year period, single-family homeowners typically amass an average of $225,000 in wealth from their homes, as stated in a 2022 report by the National Association of Realtors.

According to Hamrick, the wealth derived from owning a home is largely paper-based, and the actual realization of that asset occurs when the property is sold.

Homeowners whose properties were reassessed between 2019 and 2023 experienced a median tax increase of 25%, according to a February 2024 study by CoreLogic. The annual median taxes for properties in the U.S. that were reassessed increased by more than $600 over that period.

Some renters may be mortgage-ready without realizing it.

After purchasing a home, home insurance is another significant expense that may change.

According to Insurify, there has been a 20% increase in average home insurance premiums between 2021 and 2023, and the company predicts rates will rise another 6% by the end of 2024.

Over the specified period, the largest increase in insurance rates occurred in Florida, Louisiana, Texas, and Colorado, due to the impact of extreme weather events.

In 2023, Florida had an average annual home insurance rate of nearly $11,000, which is significantly higher than the U.S. average of $8,600. Additionally, six of the top 10 most expensive cities to insure in the country are located in Florida, according to Insurify.

As insurance premiums rise, so does the cost of repairing a home.

Hamrick stated that this space will be monitored in the future due to its dynamic, volatile, and potentially costly nature.

Tips for homebuyers

The NAR recommends that people shopping for a home rely on their realtor first. Homebuyers should ask their real estate agent for a history of costs associated with owning the home, including property taxes, insurance, trash removal, water, gas, and electrical bills.

It is essential for homebuyers to check if the state they plan to purchase in has any laws limiting annual property tax increases.

Viehman said that a good agent should be able to answer all those questions for you.

Viehman advises setting aside funds in your monthly budget for unexpected expenses.

"While you may qualify for a $3,000 monthly mortgage payment, it's not necessary to max it out immediately. Instead, aim for a mortgage of around $2,500 if $3,000 is your comfortable budget. This will give you some breathing room."

Tips for current homeowners

Struggling homeowners have alternatives to manage their monthly payments.

You may be eligible for additional assistance or programs through the Department of Housing and Urban Development, as recommended by the Consumer Financial Protection Bureau.

The CFPB advises cash-strapped homeowners to contact their mortgage servicer to discuss their inability to pay, whether it's a permanent or temporary situation, and provide details about their income and expenses. A mortgage lender may offer a repayment plan or loan modification.

Homeowners can also consider switching insurance companies if their rates get too high.

"Viehman advised, "It's important to interview various insurance companies. Interview multiple lenders, realtors, and insurance agents to understand their offerings and determine what suits your needs best.""

The video above explains why home payments are increasing and provides tips for homebuyers to manage in this difficult market.