‘Hidden’ Costs Sink Too Many Ships

Extra $1K A Month?

But maintenance is only one of the recurring expenses ownership entails. There are a host of other costs that should be considered — but often are not. Some call them “hidden.” Others say they’re “ignored.” And still others say they’re simply “forgotten.” But by whatever name you choose, they’re no roses.

Taken together, these costs add $1,180 a month on top of the typical house (principal and interest) payment, according to Zillow and Thumbtack, a site that links homeowners to local contractors. Hit by these expenses — expenses they did not expect or at least consider — it’s no wonder a good many buyers not only regret their decisions but also fall into default and maybe even lose their places to foreclosure.

In other words, home buyers who focus solely on the cost of mortgage interest and principal are doing themselves a disservice. And so are the lenders who allow them to do so. Might not it be better to at least warn would-be borrowers of the land (no pun intended) mines that lay ahead?

Two costs often ignored by buyers are insurance and property taxes, likely because they are usually included as part of their monthly payments. But unlike the P and I portions of a fixed rate mortgage, the total of which does not change over the loan’s term, the T and I shares change, mostly up and often annually.

Take property taxes, which are the principal means by which state and local jurisdictions pay for the services they provide their citizens, accounting for more than a third of their total receipts. Some $174 billion in taxes were paid by property owners in the first quarter, nearly twice the 15-year average, the Census Bureau reports.

Over the previous four quarters, moreover, tax growth has accelerated substantially in each quarter, quadrupling since the first quarter of 2022. Property tax revenue is catching up to home values — and in a hurray, says David Logan, an economist with the National Association of Home Builders (NAHB).

Property taxes are inescapable if you don’t want a lien placed on your place. And unless you want to go commando, you’ll need homeowners insurance for protection against fire, theft, and major disasters. What’s more, if you have a mortgage, insurance will be required.

The decisions by major insurers to leave California and Florida has opened the door for companies in those states and elsewhere to up the ante. One Miami owner reports his premiums are more than double his property taxes because of the cost of windstorm coverage.

The Insurance Information Institute tells me the average home insurance premium has increased 11% year-over-year in 2022 to $1,700 annually. Florida owners have experienced the highest one-year average increase: 42% to $6,000 a year.

Beware The Omnipotent HOA

Homeowners association dues are often forgotten until the first bill arrives. This cost is unavoidable as well. You have to pay whether or not you use the pool, play golf, or hang out in the clubhouse, And because their costs are rising, just like everybody else’s, they are continually marching upwards.

Almost a third of all housing is in properties governed by homeowners or community associations, and more than three-quarters of all new construction is under the auspices of associations, the Foundation for Community Association Research reports.

While there’s no specific data on dues, about a third pay between $100 and $300 a month. And as with everything else, dues are increasing. Two-thirds of associations report increasing their assessments in 2022, and 84 percent expect to increase assessments in 2024 to keep up with rising costs.

If dues don’t keep up, the property could go downhill. Dues in my small neighborhood have never, ever been raised. And now we can’t afford to repair the community basketball court or fix and powerwash the entryway fencing. A big jump in dues is in the offing.

Then there’s the cost of utilities, which varies depending on your location, age, and size of the property and the number of occupants. According to figures developed by the NAHB from Census Bureau data, fuel runs about $2,500 a year while water and trash costs $845. And that was in 2021.

Move.org, a site that matches people to household moving outfits, has far more detailed and up-to-date monthly numbers: $117 a month for electricity, $45 for water, $62 for natural gas, $66 for sewer, $60 for the Internet, $48 for streaming services, $114 for mobile phone service and anywhere from $25 to $100 for trash. That is a total of at least $537 for everything on the list.

Improvements are a discretionary decision, but maintenance is necessary to keep your place in good working order. Maintenance costs vary widely, depending on your location. But more than half of the first-time buyers polled by U.S. News and World Report said they encountered unexpected repairs after moving in.

Based on what Thumbtack considers 17 “essential” maintenance projects, the average cost nationally is $6.413. But they range from a low of $3,467 in Las Vegas to a high of $8,639 in Los Angeles That’s more than a $5,000 difference!

“What I find frustrating is how fast things like appliances fall apart and head for the dump,” warns a Tennessee homeowner. “If someone tells you the washing machine will last 10 years, don’t believe them.”

No doubt that owning a place is more costly than renting. But some buyers/borrowers, especially those doing so for the very first time, come into it with a renter mentality. At the very least, they need to be forewarned of what lies ahead.