Lew Sichelman
Homebuyers who focus solely on the cost of their mortgage’s interest and principal are doing themselves a disservice. There are other recurring costs that should be factored into the decision.
Some people call them “hidden” costs, others say they’re “ignored” and still others said they’re simply “forgotten.” But whatever name you choose, they’re real and they are mounting.
These costs can add $1,180 to the top of each month’s payment for a typical house, according to a recent survey by Zillow and Thumbtack.
Two costs often ignored by buyers are insurance and property taxes, likely because they are usually included as part of the monthly payment – hence the acronym “PITI,” which stands for principal, interest, taxes and insurance. In a fixed-rate mortgage, the amounts represented by those first two initials (principal and interest) do not change over the loan’s term. But the “T” and the second “I” (taxes and insurance) do change – they mostly go up, often annually.
Insurance Costs Rising
Take property taxes, which are the primary 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 of 2023, the Census Bureau reports. Moreover, growth has accelerated substantially in each of the previous four quarters, quadrupling since the first quarter of 2022.
Property tax revenue is catching up to home values – and in a hurry, said David Logan, an economist with the National Association of Home Builders.
Property taxes are inescapable if you don’t want a lien placed on your house. And unless you want to tempt fate, you’ll need homeowner’s insurance for protection against fire, theft and major disasters. If you have a mortgage, insurance will be required, anyway.
The decisions by some major insurance companies to leave California and Florida have opened the door for other insurers to up the ante. One Miami homeowner reports that his insurance 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 percent over the past year, to $1,700 annually. Florida homeowners have experienced the highest one-year average increase: a jump of 42 percent, up to $6,000 a year.
HOA Dues, Utilities Pile On
Homeowners association dues are often forgotten until the first bill arrives. Almost a third of all housing is governed by HOAs or community associations, as is more than three-quarters of all new construction, reports the Foundation for Community Association Research.
Just like taxes and insurance, HOA dues are unavoidable; you have to pay whether or not you use the pool, play golf or hang out in the clubhouse. About a third of homeowners reportedly pay between $100 and $300 a month in dues. And because HOAs’ costs are rising, just like everybody else’s, dues are continually marching upwards. Two-thirds of associations reported increasing their assessments in 2022, and 84 percent expect to increase them in 2024.
It’s important to note that if HOA dues don’t keep pace with other rising costs, the property could go downhill. For example, 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 power-wash the entryway fencing. A big jump in dues is in the offing.
Then there’s utilities. These costs vary with your property’s location, age and size, as well as the number of occupants. According to figures developed by the National Association of Home Builders using data from the Census Bureau, fuel (electricity, gas, etc.) runs about $2,500 per year, while water and trash cost $845 per year, combined. And that was in 2021.
Move.org, a site that matches people to household moving companies, has a more detailed breakdown of average utility costs: $117 a month for electricity, $45 for water, $62 for natural gas, $66 for sewer, $60 for internet, $48 for streaming services, $114 for mobile phone service and anywhere from $25 to $100 for trash. That a total of at least $537 for everything on the list.
What about the costs for projects around your house? Improvements are discretionary, but maintenance is necessary, and costs vary widely by location. More than half of the first-time buyers polled by U.S. News and World Report said they encountered unexpected repairs to be done after moving in.
Thumbtack calculated the estimated annual costs for home maintenance, based on what it considers 17 “essential” annual projects. Nationwide, the average cost is $6,413. Adjusted for location, though, the prices range from a low of $3,467 in Las Vegas to a high of $8,639 in Los Angeles – more than a $5,000 difference!
“What I find frustrating,” said one Tennessee homeowner, “is how fast things like appliances fall apart and head for the dump. If someone tells you the washing machine will last 10 years, don’t believe them.”
Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.
