Rising Costs of Home Ownership
I’ve been an advocate for homeownership all my life. Most of us baby boomers share this thought as a pillar of building wealth. There’s evidence of this everywhere. Last year almost a third of all residential real estate sales were cash. The average homeowner has over 70% equity in their home but that includes owners who own their homes free and clear. If you look at homes with a mortgage still on them, those homeowners have an average of 50%-60% equity in their home! So, owning your home is one of the greatest wealth builders compared to just about any other “investment.”
Many Millennials are missing out on this opportunity because of affordability. The average age of a first-time homebuyer in 2025 was 40 years old….40! There are many reasons for this but saving for a downpayment is one of the biggest. Next is the payment itself. Most mortgage payments consist of four different buckets; principle, interest, taxes and insurance. Anybody can plan for principal and interest because generally, that payment will be fixed for the life of the loan. The other two parts of the payment, insurance and taxes, used to be a small portion of that payment. That portion has been growing much faster than inflation and wage growth. It affects homebuyers who are trying to plan what payments might be, thus keeping them in a rental status and delaying the wealth building of homeownership. Also, it affects seniors and retirees who don’t even have a mortgage but are on fixed incomes. Many buyers today can afford the principal and interest payment, but the unknown of the insurance and taxes keep homeownership out of reach, forcing them to miss out on the future appreciation of the home.
Property taxes in our area have risen over 27% in the last six years and homeowners’ insurance has risen over 40%. Home values have appreciated 50-60% cumulatively in that same time frame in Ohio giving homeowners the benefit of great equity, but the challenge of higher taxes and insurance. Homeowners can rationalize the increase because of the “feel good” effect of knowing their house is worth much more, but for a homebuyer, it’s a serious challenge to getting that first home.
There are serious property tax reform ideas in the works, and they will help seniors and current homeowners, but will take a while to bake itself into the current market of homes for sale. I see no decrease in homeowners’ insurance anywhere in the future.
It’s not all gloom and doom. The biggest wealth transfer from baby boomers to their kids is coming in the next 20 years and the wealth they pass down to their kids can offset some of the increased costs, allowing them to put more money down on a house. Let’s just hope the kids don’t miss out on 20 years of home appreciation. As I have said before, if you have the means, and know your kids are going to be your beneficiary, give it to them now so they can build wealth as you did.
