Rising Homeowners Insurance Premiums Deepen U.S. Housing Affordability Challenges

Homeowners insurance premiums in the U.S. have risen dramatically, growing by 24% between 2021 and 2024, outpacing inflation by 11%. This increase is driven mainly by the growing frequency of extreme weather events, which have doubled major climate-related disaster declarations compared to long-term historical averages. Economic losses from natural disasters reached an estimated $145 billion in the first three quarters of 2024 alone, contributing significantly to higher insurance costs.

The rise in claims, especially for catastrophic events such as hurricanes, wildfires, and floods, has pushed up losses and premiums. At the same time, construction and rebuilding costs have increased over 64% in the past decade due to inflated material and labor expenses. These factors together have escalated costs for both insurers and homeowners, exerting additional financial pressure on the housing market.

This surge in insurance premiums compounds existing affordability challenges stemming from elevated home prices, mortgage rates that have more than doubled since 2020, and rising property taxes. The affordability gap between median household income and the income necessary to afford a median-priced home has reached a historic high, partially due to these rising insurance costs.

The impact extends beyond prospective homebuyers to current homeowners, many of whom face significant increases in monthly housing expenses. This strain particularly affects those on fixed incomes and can result in mortgage delinquencies and defaults. In some high-risk regions, rising insurance rates are contributing to declining home values and transaction activity, particularly in disaster-prone areas such as Florida's west coast and wildfire-exposed markets in California.

The insurance premium surge is also altering other market dynamics: Builders must comply with more stringent building codes tailored to mitigate disaster risks, while lenders and appraisers have to account for elevated costs and risks when evaluating loan eligibility and home values. Real estate professionals must adapt to these new complexities to better support clients.

Overall, the interplay of increasing homeowners insurance premiums, disaster risk exposures, and broader housing market factors signals ongoing challenges ahead for affordability and market stability. Insurers, housing market participants, and regulators will need to monitor these developments closely as they influence lending, construction, and property valuation practices moving forward.