Surge in home insurance costs adding more inflation pressure on Americans

Surging home insurance premiums are the latest obstacle to homeownership for millions of Americans, who are already grappling with steep mortgage rates.

The astronomic rise in mortgage rates and spike in home prices over the past year has pushed a key tenet of the American dream out of reach for millions of families. 

Now, there is another obstacle to homeownership: higher home insurance premiums.

The average cost of home insurance for a $300,000 property in the U.S. surged 12% in 2023 to roughly $1,770 per year, according to recent data published by Insurify, an insurance comparison website headquartered in Massachusetts.  

That is noticeably faster than the 2.8% increase in the consumer price index recorded during that same time period.

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"As a recurring cost of owning a home, albeit a relatively smaller component, surging insurance premiums could add extra cost burdens on many households in this high borrowing cost environment," Freddie Mac economists wrote in a recent blog post about the matter. 

Freddie Mac data shows the average annual home insurance premium was $1,081 in 2018 among borrowers living in a single-family home with a conventional 30-year mortgage. By 2023, that had jumped to $1,522 – a more than 40% increase from just five years ago. 

The problem may soon get worse. 

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Insurify predicts that the cost of home insurance will keep growing, with average premiums in the U.S. likely to hit a record high of $2,552 by the end of 2024. That would mark a whopping 44% increase from the previous year.

Researchers have blamed the skyrocketing prices on a number of factors, including weather disasters, rising re-insurance rates and steep home repairs as inflation pushes the cost of building materials higher.

Home insurance is even more expensive in states plagued by severe weather and other climate-related catastrophes. As the frequency and severity of destructive weather events have increased, more areas are considered high risk and unprofitable for insurance companies.

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In fact, a growing number of insurance companies are opting to leave states like California and Florida, driving prices even higher for homeowners. Florida is the most expensive state for home insurance, with the average annual cost rising $9,213 last year. That is 421% higher than the national average.

Rates jumped by 14% in 2023 as several major insurers stopped renewing certain policies or left the state entirely, citing concerns over hurricane risk. Severe weather damages in Florida topped $15 billion last year.

The spike in home insurance is not showing up in government inflation data, which only measures the slower-rising renters insurance policies. Had homeowners insurance been factored into the CPI in 2023, the gauge would have come in higher at 4.11% – a 0.7% percentage point increase from what was actually reported. 

This suggests that the CPI does not fully capture the price pains that are actually hitting everyday Americans. 

Inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily impacted by price fluctuations.