When it comes to the rising cost of home ownership, according to a new commentary from First American, there’s two sides to the coin — whether you’re still paying a mortgage or you own the place free-and-clear.
“Whether trying to buy a home or simply stay put,” writes Senior Economist Sam Williamson in the commentary, “more Americans are finding that the financial demands of homeownership are becoming harder to meet — and harder to manage.”
For borrowers, the cost of insurance, property taxes, utilities and maintenance climbed more sharply in dollar amounts. But for outright owners who have paid off their home loans, the increases have risen more steeply in percentage terms.
Between 2020 and 2023, mortgage holders saw their average monthly expenses rise by $305, a 16% increase that brings their average monthly bill to an all-time high of $2,268. Meanwhile, the monthly outlay for outright owners jumped almost twice as fast at 29%, or $180 to $799 for another record high.
“While mortgage holders face higher overall expenses, outright owners are seeing their housing budgets stretched more rapidly relative to income,” says Williamson. “While both groups are paying more than ever to own their homes, the financial strain looks different depending on who is footing the bill.”
As the economist sees it, mortgage holders, who tend to be younger and in their prime earning years, have done a better job offsetting rising costs with rising incomes. For this group, the median share of household income spent on homeownership hit a low of 19.8% in 2020 before edging up 0.5 percentage points to 20.3% in 2023.
Outright owners, by contrast, are often older and more reliant on fixed incomes. Although their monthly costs remain lower in absolute terms, those costs have risen more sharply relative to income — pushing their housing burden up by 1.1 percentage points to 10.5%.
Today’s affordability pressures aren’t without precedent. Mortgage holders faced a similar burden rate as recently as 2018, and outright owners saw comparable levels back in 2015. So, while homeownership costs are rising, they’re not yet in unfamiliar territory.
But the pace and scope of the most recent increases suggest the dream of homeownership is becoming harder to attain and sustain.
“With mortgage rates expected to remain elevated and insurance premiums anticipated to keep climbing in many regions, the key question is whether income growth can keep up — or whether more households will fall behind,” Williamson wonders.
That’s a question for a future commentary, he says. For now, he says the source of rising housing costs isn’t one-size-fits-all. It again all depends on how the house is owned.
For mortgage holders, the biggest cost pressure has come from monthly mortgage payments, their largest monthly expense. That burden grew in two waves. First, during the pandemic-fueled housing boom between 2019-2021 that limited supply and pushed prices to record highs. Then again when interest rates climbed sharply in 2022 and 2023, raising borrowing costs.
Since 2019, the average monthly mortgage payment has increased by $275 — a 22% jump that could add nearly $100,000 in additional payments over the life of a typical 30-year loan.
Even without having to pay a mortgage each and every month, outright owners haven’t been spared from rising housing costs. Property taxes surged as pandemic-driven home value gains pushed up assessments — rising by $32 in 2022 and $11 more in 2023.
That adds up to more than $500 in additional annual taxes, more than double the roughly $200 increase faced by mortgage holders over the same period.
Both groups, however, saw similar increases in home insurance premiums, which have risen sharply since 2021, particularly in disaster-prone regions. And it is a trend that is likely to continue as extreme weather and climate disaster events increase in frequency and severity.
Utility costs also have risen for both groups, driven by electricity prices which have continued to increase.
