“As a housing economist, the insurance costs and the effect of the insurance on the housing market is not something we will ever worry about”, Corelogictold those present at Housing‘s Housing Economic Summit on Wednesday.
“When we were talking about affordability, we spoke about mortgage interest and supply and demand, but never insurance, because that was considered a constant.”
That has changed. Corelogic data shows that the percentage of mortgage lenders that pay more for their taxes and insurance than their principal sum and interest rose from 2% about ten years ago to almost 10% today.
Moreover, in the past five years of Corelogic data, it appears that the costs of the house insurance have risen by more than 50% – including 55% in Texas, 57% in Illinois, 60% in Nebraska and 62% in Arizona.
“Now affordability is increasingly dependent on non-mortage components of a total monthly payment,” said Hepp. “Real estate tax, insurance and utilities – of which I think it only rises as energy costs rise with all data centers built with enormous energy needs – will all influence the increasing costs of the variable parts of a monthly mortgage payment.”
HEPP noted that although states such as California often get the headlines for the insurance challenges of their homeowners, the average premium costs there are around $ 1500 per year as a result of regulations set by the insurance policy controller.
For comparison: the data from Corelogic show that the average annual premium between $ 4,000 and $ 5,500 is in a large part of “Tornado Alley”, which includes states such as Texas, Oklahoma, Kansas and Nebraska.
“Almost half of the claims that insurers see are powered by Hagel and Wind, which is correlated with the areas in the middle of the country,” Hepp said.
When it comes to the rapid rise in insurance costs, HEPP sees six important drivers.
The first is the frequency and severity of natural disasters. The data from Corelogic show that this has resulted in an increase of 53% in losses in the past 10 years compared to the previous decade.
“I recently experienced the LA fires personally and that the costs of natural disasters are estimated, only for insured properties, at almost $ 45 billion,” Hepp said. “If you take all economic knock-on effects into account, this amounts to almost $ 200 billion in costs.
“And only a few months before we let the hurricane come through the west coast of Florida and to North Carolina, which cost more than $ 30 billion.”
Although the seriousness and frequency of these large -scale natural disasters has increased, the number of people who have increased characteristics and living in areas that have increased in recent years has increased rapidly, another factor that contributes to rising insurance premiums.
HEPP also sees the construction costs and reinsurance costs as an important contribution to the problem with the affordability of the insurance.
“Cumilative inflation has risen around 20% to 30% since the start of the pandemic, while construction costs have since risen 44%, and that is both for both material costs and work,” Hepp said.
She also noticed that state regulations, such as those in Florida, have ensured that some insurers leave the state. This gives consumers fewer choices, resulting in a large concentration of risky properties that are covered by the state insurer of the latest resort, which also drives up premiums.
With premiums that rise throughout the country, HEPP said that Americans will see these costs that more often reflect in house prices.
“We see that in places such as Cape Coral or the Gulf Coast from Florida, where house prices are falling due to insurability and lack thereof,” Hepp said.
Corelogic carried out a thought experiment with the help of national data and discovered that if house prices fall by 10%, 2.4% of the mortgages would be under water. If prices fall by 20%, the share grows to 6%.
“That is actually not so bad considering that 40% of the houses came under water from the big financial crisis,” Hepp said. “So at the national level it is not that bad of a story, but again, there will be a lot of variation at the local level. And in places where people have less fairness, there is a greater chance that people lose equality and lose their homes. ”
