Home insurance challenges and the impact on real estate professionals

Historically, the search for home insurance begins after a dream home has been found, mortgage payments have been calculated and a seemingly endless amount of paperwork has been completed. Insurance is one of the final steps towards crossing the finish line. But, as natural catastrophes, supply chain and labor market issues are increasingly impacting home insurance affordability and accessibility across the country, some buyers and real estate professionals are discovering the benefits to exploring insurance options earlier in the buying process.

A difficult age of unaffordability

Today’s homeowners and prospective homebuyers are faced with a handful of new challenges that are affecting the feasibility of owning a home.

1. The current housing market is the least affordable it has been since 1984.

In the past, monthly home payments were less than 25% of the median household income but now, more than 40% is required to cover just the principal and interest payments alone, not including insurance. This is far above the traditional 28% income rule of thumb, with today’s homeowners paying $2,361 on average for their monthly mortgage payment.

Additionally, inflation has led to increased costs for materials and labor to build and repair a home. In turn, homes are more expensive to insure and home insurance affordability is increasingly a concern. In fact, the national average annual premium rose to $1,700 in 2023.

Not to mention, wage growth has failed to keep up with the spiking inflation, making everyday consumer purchases feel like an extreme burden. According to recent surveys, 40% of Americans are concerned about financial stress in 2024 and 60% feel homeownership is unattainable.

2. Cash buyers, baby boomers not downsizing for retirement and institutional investors are causing stiff competition.

Cash sales made up 38% of home sales in 2023, outbidding the few homebuyers who can afford the high mortgage costs, as they don’t need to spend their time on the intensive loan process.

Tough competition is also being driven by the baby boomer generation who is choosing to stay in their family homes instead of downsizing, as more than half have no outstanding mortgage. In doing so, they aren’t freeing up the home supply for young families and first-time buyers.

Moreover, investors who are purchasing units to rent them out have reduced the supply of owner-occupancy homes. By 2030, it’s predicted that institutional investors will control 40% of single-family homes.

3. The impact of climate change on home insurance affordability is expanding beyond coastal states.

Climate risk events such as wildfire, high wind and flooding are occurring more frequently in places previously considered safe. It’s another factor driving up the cost to insure homes, and as a result, many insurance providers are exiting markets, making it difficult to purchase insurance at all.

Home insurance affordability will only become even more of a challenge as insurance carriers continue to identify and attempt to predict these rising risks. In fact, some home insurance premiums already increased more than 23% last year in Illinois and Texas.

Approximately 12% of homeowners have foregone home insurance due to affordability issues, but it’s a big risk considering damage repair costs are at all-time highs and U.S. climate disasters totaled $92.9 billion in 2023.

Reverse the homebuying process and prioritize insurance first

With the strenuous process of buying a home – the mortgage application alone taking up to 60 days to complete – if homebuyers nearing the end discover that they can’t afford the home, everyone is left with nothing to show for their two months of work. This results in frustration among all involved and can send buyers to other agents and lenders in the future when they are ready to purchase.

Some real estate professionals are now prioritizing education on essential home buying components such as home insurance affordability and differences between purchase price and monthly costs first so that homebuyers can better budget for the total price of their home.

When it comes to insurance, being informed on the choices and availability of different policies is key to helping a homebuyer find the right insurance to fit their budget and needs. With a better understanding of what they can afford, buyers can avoid a last-minute halt to the deal.

A digital insurance solution, such as VIU by HUB, can aid in making the insurance search more manageable and streamline the entire process. And, working with a broker can start earlier in the home shopping process than some may think. At any point, prospective buyers can receive insurance quotes on a property by submitting just a few easily accessible details, such as the address and type of roof construction. This allows home buyers to have a clear picture of the total cost of the home, including estimated monthly insurance payments, before they invest time and energy into submitting an offer. Additionally, shopping for insurance through an independent broker also offers homebuyers the added benefits of choice, transparency and trustworthy neutral advice.

In an industry with numerous volatile underlying factors, real estate professionals need to be able to adapt their processes to best meet the needs of buyers and improve their own outcomes – and, most importantly, make sure available houses are paired with the people that make a house a home.