Homeowners rates rise nationwide, affordability remains an issue into 2022

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Jasmine Kim

B2B Content Manager

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  • Licensed Insurance Agent — Property and Casualty

Jasmine is The Zebra’s newsroom content writer. With a background in journalism, she reports on breaking news, trends, mergers and acquisitions, and …

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Renata Balasco

Senior Content Strategist

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  • Licensed Insurance Agent — Property and Casualty

Renata joined The Zebra in 2020 as a Customer Experience Agent. Since 2021, she has worked as licensed insurance professional and content strategist.…

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Home insurance on the rise

According to the Insurance Information Institute, homeowners insurance rates have increased by 4%[1] in 2021 compared to the year prior. Since 2017, premium rates are up 11.4% on average, which means they are rising faster than inflation. So what will the housing market in 2022 look like, and what factors are playing the biggest roles?

Rising mortgage rates

The National Association of Realtors (NAR) and the National Association of Home Builders (NAHB) both projected that higher mortgage rates[2] will be set in 2022 to help moderate home prices, but low inventory will still favor sellers rather than buyers as the year progresses. The group not only predicts that mortgage rates will increase by 3.7% due to inflation; they also predict that median home prices will continue to rise by 5.7% this year.[3] 

According to a January 2022 study conducted by Freddie Mac, mortgage rates rose across all mortgage loan types, with the 30-year fixed-rate mortgage increasing by almost a quarter of a percent from last week.[4] Since rising mortgage rates impact monthly payments made on a home, some shoppers will need to shift their search down in price to account for the change. Rising interest rates will eventually impact home affordability and lower the chance for some shoppers to become homeowners. 

Already, the Federal Reserve[5] signaled that it would begin raising interest rates in March, and the median home price increased by 14% compared to the year prior.[6] 

 

Supply and labor shortage

While 2021 saw a supply shortage in lumber and timber, the biggest obstacle the housing market is going to face this year is the nationwide labor shortage. Finding qualified truck drivers is predicted to be a continuing pain point in the industry, in addition to having to navigate regulations around drug testing and marijuana legalization.[7] The NAHB also estimates that the construction industry will need to add 740,000 workers a year to make up for the upcoming retirements and the industry’s growth.[8] 

But that doesn’t mean the supply shortage has been completely resolved just yet — although the lumber and timber shortage isn’t as debilitating as it was in early 2021, material prices are still as volatile as before. At the end of 2021, building material prices increased by almost 20% compared to the year prior.[9] 

Get the breakdown of different building materials and their price increases in the NAHB January report here

Climate impact

Although natural disasters took the nation by storm in 2021, some states were hit harder than others. Dealing with weather-related catastrophes isn't new for high-risk states like Florida and California, but the sheer amount of claims are pushing carriers to inevitably raise rates to be able to accurately assess risk and even pull their presence from heavily impacted states. 

United Property and Casualty Insurance Co., one of Florida’s largest carriers, reported that it would stop writing new homeowner business[10] in the state while also asking for a 22.6% rate increase on some policies.[11] The carrier blamed hurricane losses, higher loss-adjustment expenses and reinsurance costs for the rate hike and pullback. In February, Progressive announced that it would drop homeowners coverage for more than 56,000 older homes across the state.[12] Other carriers like the Florida Farm Bureau, TypTap Insurance and People’s Trust Insurance have also stopped writing new policies in the state. 

California is also seeing carriers increase rates and halt writing new business in the state as well. Fifteen of the state’s top 20 most destructive wildfires happened in the last six years, with almost 9,000 fires burning 2.5 million acres in 2021. In December 2021, AIG announced that it would completely exit the state’s homeowners insurance market due to escalating wildfire risk.[13] Other carriers like Progressive, Chubb and The Hanover have suggested that they would scale back their exposure across the state as well. 

But Florida and California aren’t the only states seeing significant rate hikes: four of the 10 biggest rate hikes across the country in December 2021 happened in Texas.[14] Homeowners in the Lone Star State saw rate hikes constantly since February 2021 due to the massive winter storm. 

FEMA revamped its federal flood insurance program back in October 2021 as well, where millions of homeowners saw rate hikes to more accurately reflect current risks and close coverage gaps. With the intent to make it more expensive to develop in risky areas, it also makes it harder for homeowners already living in these areas to afford flood coverage. The agency said it plans to collect 50% more in premiums under the new program over time.[15]

A bleak future for new homebuyers

The lack of affordability in the housing market is hitting younger generations the hardest, as first-time home shoppers are getting priced out. According to a recent survey conducted by Fannie Mae, the share of Americans who say it’s a good time to buy a home hit an all-time low of 25%, while 69% say it's a good time to sell.[16] The lack of affordable houses is hitting younger generations the hardest, with home prices in family-friendly suburbs rising the fastest.[17] The survey also found that consumers expect rents to increase by a record this year. 

The pandemic created an unprecedented demand among renters for space and privacy as well — average monthly rents listed in the country jumped more than 14% year over year in December 2021, with major cities like Austin, Texas and Miami, Florida seeing rents increase by more than 30%.[18] In fact, in 2021, almost 7,000 build-to-rent homes were completed which was the highest yearly total to date. Industry experts expect that number to grow at a rapid pace, with an estimated 14,000 build-to-rent homes already under construction just two months into 2022.[19]

Despite the surge in costs across the board, the preference for suburbs is as strong as ever. Over the next two years, a record number of millennials will reach 32, the median age of first-time homebuyers in the nation looking for homes that fit the needs of growing families. Not only does this mean the price will keep increasing in high-demand neighborhoods for the next few years; it also makes saving for a down payment even more challenging as the competition increases.[20]

Sources:
  1. Many home insurance premiums are rising faster than inflation. Washington Post

  2. NAHB AND NAR ECONOMISTS PROJECT WHAT 2022 HOUSING MARKET WILL BRING. Builder

  3. Leading Economic and Housing Experts Predict Multiple Fed Interest Rate Hikes, Slowing Inflation and Home Price Growth in 2022. National Association of Realtors

  4. U.S. WEEKLY MORTGAGE RATES JUMP SIGNIFICANTLY. Builder

  5. Fed Interest-Rate Decision Tees Up March Increase. The Wall Street Journal

  6. Housing Market Update: Hottest January on Record Despite 1st Pending-Sales Decline Since June 2020. Redfin

  7. What to expect for lumber clients in 2022.Property Casualty 360

  8. Experts predict what the 2022 housing market will bring. Washington Post

  9. LUMBER PRICE VOLATILITY AT 75-YEAR HIGH. Builder

  10. Another Big Insurer Stops Writing Homeowners Policies in Florida. Insurance Journal

  11. UPC to Stop Writing New Homeowners Insurance in Florida: Report. P&C Specialist

  12. Progressive to Drop Coverage for 56,000 Older Homes in Florida. P&C Specialist

  13. AIG to Cease Underwriting Homeowners Insurance in California's Admitted Market. P&C Specialist

  14. Homeowners Rates Jump Yet Again Across Texas. P&C Specialist

  15. Flood insurance costs rise in areas once deemed lower risk. AP News

  16. There’s Never Been a Worse Time to Buy a Home in a Poll of U.S. Households. Bloomberg

  17. Millennial Demand is Driving up Prices in Family-Friendly Neighborhoods. Zillow

  18. How Rent Hikes Make Buying a House Even Harder.The Wall Street Journal

  19. BUILT-TO-RENT HOMES EXPECTED TO HIT ALL-TIME HIGH IN 2022. Builder

  20. It’s Harder to Save for a Down Payment, But Today’s First-Time Buyers Have Some Unique Opportunities. Zillow