While nearly 90% of Harris County residents believe homeownership is a milestone of adulthood and nearly 80% said it is a good way to build wealth, rising costs associated with homeownership could keep many people from buying a home and make it harder for others to stay in their homes.
This post is part of a series highlighting the findings from the 2024 State of Housing in Harris County and Houston.
The cost of homeowner’s insurance, private mortgage insurance (generally for those without 30% to pay upfront for a home), flood insurance (typically not covered by homeowner’s insurance policies) and windstorm insurance in limited coastal areas are not helping to close the homeownership affordability gap. The gap refers to difference between the price the median household income can afford and the market’s median sales price, assuming that no more than 30% of monthly income is spent on housing. In Harris County, that gap has nearly quadrupled in 5 years.
“When calculating how much people pay for homes, we account not only for monthly mortgage costs but also insurance and property tax,” said Steve Sherman, a research scientist for the Kinder Institute and author of the 2024 State of Housing report. "We’re already in an affordability crisis, so rising insurance rates can only make a bad problem much worse. Increasing unaffordability means Houston’s at risk of permanently losing our reputation as a desirable city where people can secure stable homeownership.”
Driving rates through the roof
Increases in home insurance are all but inevitable given that home insurers suffered their worst year of the century in 2023. Losses of more than $15.2 billion in 2023 more than double losses from 2022.
“Property insurance is seen as a necessity in our disaster-prone area,” Sherman said. “So its unaffordability has implications beyond just home prices, it also raises questions about how ‘safe’ making a home here really is.”
The greater Houston region suffered through a trio of billion-dollar disasters in the first seven months of 2024. A derecho in mid-May was followed by a hail storm a couple of weeks later. Those storms combined to cause more than $3.2 billion in damage. In July, damages and economic losses from Hurricane Beryl were estimated to be $28-32 billion by AccuWeather. The National Oceanic and Atmospheric Administration estimates the damage alone cost $6 billion.
Disasters have been putting pressure on the insurance industry in Texas, and some companies are pulling back from writing policies in disaster-prone areas or are raising their rates. Last week, Progressive Insurance said it will stop writing homeowners policies in Texas, and an affiliate of Farmers Insurance made the same decision earlier this year.
Texas Real Estate Source reported in January that weather patterns (including hurricanes, hail storms and tornadoes), rising construction costs and a labor shortage has contributed rising building and rebuilding costs. This in turn results in higher home insurance rates. From May 2022 to May 2023, insurance premiums for Texans jumped by 27%, according to the report. In the previous year, rates jumped by 16%.
Many residents in coastal counties rely on the Texas Windstorm Insurance Association to provide wind insurance if they cannot get it privately. But the association is recommending a 10% rate increase, as the association’s own assessment found that its rates are inadequate by 38% for residential coverage and 45% for commercial coverage.
Rising flood insurance rates are further cutting into Houston’s housing affordability, with average premiums expected to rise as much as 75%. With as much as a third of Houston-area housing built in a flood plain, some homes have flooded multiple times and received payouts worth far more than the value of the home.
Squeezing the household budget
Rising insurance rates as the result of more payouts from insurance companies won’t make affordable homeownership any easier.
To calculate affordability gaps in the 2024 State of Housing in Harris County and Houston and in previous reports, researchers assume insurance premiums are equal to 1% of a home’s value. For instance, the median home sales price in 2023 in Harris County was $315,000, which means insurance would cost about $3,150 per year.
“This is looking more and more like an outdated assumption,” Sherman said. “It’s likely to increase, and that will need to be reflected in how we calculate affordability.”
One report suggests the Houston area has the highest average annual insurance cost ($6,610) among the nation’s 20 largest metropolitan areas. Fort Worth ($5,355), Miami ($5,315) and Dallas ($5,045) round out the top four.
While rates may be increasing and some insurers are exiting, homeowners have options to try to find an affordable price.
“With over 180 insurance companies in Texas, the best way to find a policy that fits your needs and budget is to compare options,” said Richard Johnson, director of communications and public affairs for the Insurance Council of Texas. “The Texas Department of Insurance’s website is a great resource. Be sure to ask about any discounts you may qualify for, such as those for safety features like security systems, water monitoring devices or a fortified roof.”
Homeowners who qualify can join the Texas FAIR Plan, which currently provides coverage to nearly 100,000 residential properties that have been denied by other insurance carriers.
