UPDATED: AUGUST 08, 2023 | 2 MIN READ
Your home is always one of the most important (and expensive) assets to protect. Even with good home insurance, this can involve out-of-pocket costs and high premiums for certain areas of protection. This makes affordability difficult for the average American family, especially first-time buyers.
The best way to plan for unexpected expenses in keeping your home safe and maintained to is to prepare for common financial risks. To help you cover your bases in the next year, here are the most significant financial risks to your home in 2023.
Fire and Weather
The damages incurred from weather and accidental fires can be devastating. While some instances require only minor repairs, others could entail complete destruction and loss of a home.
The astronomical cost of serious natural disaster damage means selecting a home insurance policy that reflects the risks of living in your state is important. Make sure you know which phenomena are most likely to threaten your home.
Fire
Losing a home to fire is a tragedy, whether an electrical appliance, an unattended candle, or a nasty storm causes it. Fire damage can be isolated or all-consuming, but it is often an expensive problem regardless.
If you do not have proper home insurance coverage, you could face the reality of a new home purchase or major repairs out of pocket. Even a small fire can cost $3,000 to $5,000 in restoration costs. A medium-sized fire can cost anywhere from $3,000 to $40,000.
Larger fires that destroy your roof or kitchen can run upwards of $50,000; anything beyond that can easily approach the six-digit price range.
While you may be able to handle the damage from smaller fires through your own funds to avoid insurance premium hikes, it is important to have the right coverage in the case of a more dramatic event.
Flooding
Water can be as damaging as fire. Serious flooding can ruin floors, carpeting, and even your home’s foundational or structural elements. In addition to the damages that can happen to your house, there is the possibility of damaged or ruin property within your house (electronics, furniture, and other belongings) that you will have to replace.
Flooding can be a result of both weather and plumbing. A burst pipe, an exacerbated leak, or high levels of flooding outside your home can all be disastrous. 1 in 50 homeowners will make a claim related to flooding. One inch of water flooding in your home can cost up to $25,000, and worse instances can destroy the home altogether.
Fortunately, there is flood insurance for renters and homeowners alike. By properly protecting your home, you will be less likely to incur massive out-of-pocket costs in the event of an emergency.
Natural Disasters
Earthquakes, hurricanes, and other natural disasters can devastate your home. Even smaller magnitude earthquakes or tropical storms can run up a bill in repair costs. Natural disasters caused $57 billion in property damage in 2021.
Natural disaster statistics vary from year to year, but certain areas can anticipate the possibility of certain disaster types. For instance, while Hawaii residents will know to prepare for hurricanes, Kansas residents will never encounter that risk. If you know what to expect where you live, you can better prepare your house to counter these risks and insure yourself with the appropriate coverage.
Maintenance and Monthly Payments
Homeowners face more financial risks and responsibilities than the initial down payment. The cost of a single-family home also includes maintaining mortgage and tax payments to avoid disastrous outcomes like ballooning debt or even foreclosure.
Taxes and Mortgage
Investing in real estate is a much steeper financial commitment than short-term renting. Aside from high house prices, the main costs you can absolutely count on include property taxes and regular mortgage loan payments, assuming you are not paying for the property in cash.
The amount you will pay in property taxes depends on the state you live in. For example, the average homeowner in Florida pays around $1,773 annually in property taxes based on a median property value of $182,400. This is based on a 0.99% tax rate—equal to the national average.
However, California residents pay a 0.71% tax rate, but on more expensive single-family homes. This results in an average of $2,839 for a median property value of $384,200.
Property markets are subject to a lot of volatility. While mortgage interest rates can be daunting, there is good news, according to economists. Though they spiked immediately after the pandemic last year, further rate hikes and price growths are unlikely.
Mortgage interest rates and the housing market are expected to decline in 2023, ranging between 5.7% and 7.4% from the most common lenders. The details of what potential borrowers can expect can be found below.
| Lender | Predicted Average Annual Interest Rate (30-year fixed mortgage) |
|---|---|
| Mortgage Bankers Associated | 5.7% |
| National Association of Realtors | 5.7% |
| Fannie Mae | 6.3% |
| Freddie Mac | 6.4% |
| Redfin | 6.1% |
| Realtor.com | 7.4% |
Regular Repairs and Upkeep
Owning a home puts the responsibility of repairs and upkeep on you rather than on a landlord. While renters are not accumulating home equity, they can count on basic maintenance being provided. A lot goes into a well-maintained and functional home, and the costs can add up quickly.
While unforeseen costs are a part of life, there are some things home buyers can prepare to encounter. First-time buyers should prepare to leave room in their budget for:
- Air-conditioning (14.2% of reported issues)
- Door repair (11.7% of reported issues)
- Toilet repair (8.3% of reported issues)
- Sink repair (5% of reported issues)
- Bathtub/shower repair (3.9% of reported issues)
- Drainage (3.6% of reported issues)
- Refrigerator repair (2.7% of reported issues)
- Lights (2.7% of reported issues)
Foreclosure
A homeowners worst nightmare is falling too behind on mortgage payments and losing their home to foreclosure. Fortunately, it takes a lot before a bank repossesses your home, which is uncommon.
Nearly 100,000 homes fare foreclosure filings each quarter across the country. That said, not all states have the same foreclosure rates. Similarly, the foreclosure processes are not identical between every state, so it is important to know the specifics of laws in your area if you fear you are nearing the risk of foreclosure.
The two U.S. regions that were tied for the highest foreclosure rates in 2022 were The Great Lakes and the Mideast. The states in these areas that make that list include Illinois, Ohio, Indiana, Delaware, New Jersey, and New York.
Break-ins and robbery
Finally, homeowners run the risk of break-ins and robberies that can lead to thousands of dollars in lost belongings as well as repairs for broken windows and doors. While this is largely out of your control, there are variables to contribute to the likelihood of a break-in.
The good news is that burglaries are not as common as they seem, and thefts that happen are rarely substantial enough to warrant an insurance claim. Only 1 in 525 homes have a theft claim each year.
Cost
It is first important to note that sometimes, an instance of theft is not worth filing an insurance claim and potentially raising your monthly premium. If the only costs you face are a window repair or loss of smaller items, it may be worth handling on your own.
When you file a claim, your premiums can increase by 9-20% depending on your policy, insurance company, and unique circumstances. To give you an idea of what might be worth covering on your own, the average home insurance claim from theft-related incidents for the 0.6% of homeowners who file is $4,415.
Increased risks
Some factors and variables can boost the chance of a break-in and robbery. Namely, the location of your home could make you more prone to break-ins, as could leaving your house more vulnerable.
60% of home burglaries occur in the daytime. While you may feel more at risk during the night, this is what may allow you to let your guard down and leave you vulnerable. Some things that can increase your risk of burglary include:
- Familiarity and convenience (living in high-crime areas, near major thoroughfares, on the outskirts of a neighborhood, or near other recently burglarized homes)
- Limited occupancy (most burglars will not break into an occupied home or one guarded with dogs)
- Low visibility (secluded homes, poorly lit homes, or homes covered with trees, shrubs, or other structures)
- Easy accessibility (alleys or side/back entries make for easy targets)
- Poor maintenance (weakened entry points, decaying windows, or outdated security systems)
- Signs of wealth (outward displays that there may be high chances of reward)
Staying safe
The best way to avoid making an insurance claim and raising your home insurance premiums is to do everything in your power to remain cautious and avoid leaving your home vulnerable to burglars.
Some steps to follow include:
- Making sure your house is watched and cared for whenever you are on vacation. Have someone take in your mail so strangers don’t suspect that it is empty, and pay someone to maintain the outer appearance (lawn, driveway, etc.).
- Invest in timers for the lights in your home. Having lights turn on and off regularly — especially at night — gives potential burglars the impression that the home is occupied.
- Invest in proper home security. This means paying for an alarm system, installing quality locks on all windows and doors, and possibly investing in cameras for home security footage. The upfront cost will pay off by deterring robbers and accumulating potential evidence in the event of a break-in. This will also help to serve as evidence for your home insurance company when they do their due diligence in the case of a claim.
FAQs
How many houses were foreclosed in the U.S. in 2017?
In 2017, U.S. foreclosure dropped 23% from 2016 to a 12-year low, with 291,579 repossessed properties.
What are the risks of buying a house in 2023?
Buying a house in 2023 is not unlike the risks every other year. Financial risks are tied to buying a home and taking out a mortgage, especially with high home prices. Specifically, in 2023, it is important to know that supply is expected to remain low with high demand, which can make the process tricky.
What are the best cities to buy a home in the United States?
This depends on what you value in the choice of your home. In 2022, the best city to buy a house in the U.S. was Overland Park, KS, according to research by Niche. The lowest cost of living was in Fort Wayne, IN. However, the cheapest city to buy a house in 2023 is Youngstown, Ohio.
Will homeowners still be able to get a mortgage in 2023?
Fortunately, even though home prices are expected to remain daunting, mortgage rates are expected to drop in 2023. Home purchases will still be possible for many American families.
How many people borrow money against their homes?
According to The Pew Charitable Trusts, about 36 million American homeowners have used alternative financing or borrowed against their homes. This is equal to about 1 in 5 American homeowners.
Protecting Your Assets
Homeownership is an expensive endeavor. In fact, the most expensive insurance premiums are typically health care and home insurance. That said, it is worth spending the extra money also to ensure that you have full coverage of your home in the case of unforeseen circumstances with big price tags.
The specifics of your circumstances will impact your needs when it comes to a policy, so it is important to shop around and find the best coverage for you. Compare home insurance rates today to ensure sure that the coverage you receive has the best balance of price and protection.
