Rising Insurance Costs Make Buying A First Home Even Harder

Forbes

2 days ago

Skyrocketing home insurance costs are extra challenging for first-time buyers.
It used to be said that owning a home protected you from unpredictable costs like rent hikes. It added stability to your life and finances. Is this still true? Have skyrocketing home insurance costs eliminated the predictability and stability of homeownership? Have they contributed to the crisis of young couples unable to buy homes and start their families? These costs have definitely been a contributing factor, according to industry observers.
Insurance Adding to First Time Buyer Challenges
'First-time home buyers have dropped to the lowest level recorded in more than four decades,' shares the National Association of Realtors' economist Jessica Lautz. Insurance is one pain point among others, including higher mortgage rates, HOA fees, energy costs and home prices themselves, she notes. Inflation is impacting all aspects of homeownership.
Lautz points to a 2024 NAR homebuying study that details home insurance costs. 'Over the past decade, while consumer prices have risen by approximately 30%, homeowners' insurance costs have surged by more than 50%,' it notes.
The high cost of housing and increased prices for everything related to homeownership, including insurance, is causing couples to delay starting families and impacts their physical as well as fiscal, health. 'Bringing housing costs to an affordable level can make all the difference in the life — and future — of a family,' according to one of many studies on the topic, this one by Habitat for Humanity.
'Homeowners insurance is yet one more hurdle to affordability,' observes Down Payment Resource CEO Rob Chrane. 'Like interest rates, it affects how much you can borrow, reducing the price range of homes you can afford,' he adds. The uncertainty around the cost of insurance your prospective home can be more damaging than the sticker shock of home prices. 'An unexpected $1,000 to $2,000 increase for homeowners insurance can suddenly upend your budget,' he shares, noting, 'In specific markets, we've encountered situations where the monthly escrow payment for insurance alone surpasses the loan's principal and interest payment.'
High interest rates are still the bigger psychological hurdle, Chrane notes, shaping what buyers think they can afford. 'But insurance costs are quickly catching up. Again, uncertainty plays a role. Interest rates are visible up front, while insurance costs come up later in the process, surprising some buyers and throwing them off track at the worst moment.'
Scope of the Problem
'According to LendingTree's 2025 State of Home Insurance Report: 'Home insurance rates have spiked 40.4% in the past six years, with the last two years seeing double-digit increases.' Rates were fairly stable from 2019 to 2021, then surged afterward. 'This is a relatively new trend,' notes licensed insurance expert and LendingTree contributor Rob Bhatt. 'Up until a few years ago, homeowners insurance was usually an afterthought in the homebuying process. Many homebuyers now need to think about home insurance earlier on in the process than before.'
Location, Location, Location
It's reasonable to expect that states like California, Florida and Texas, with their headline-grabbing disasters, would be the front runners for insurance hikes. However, as Chrane observes, other forces contribute to rising premiums, including regulatory challenges and insurer exits. Disaster-prone states have also set up their own insurer-of-last-resort programs for regions where homeowners can't find policies.
Bhatt points to California's as an example. 'Even if your insurance company doesn't raise your normal home insurance rate, you may receive an extra charge to help cover the FAIR Plan's expenses.' He also notes that California's insurance commissioner has given conditional approval for State Farm's temporary rate hikes to become permanent. 'I imagine other companies have filed, or will file, for rate increases to keep up with the rising costs of insuring homes in California,' he predicts.
The latest natural disaster to hit homeowners was the Texas hill country flash floods from earlier this month. Bhatt doesn't expect them to hike rates for one simple reason: 'Homeowners insurance doesn't cover floods.'
At the same time, the insurance expert notes that insurers tend to avoid homes in elevated risk areas. 'Considering the extent of the damage, I suspect that some insurance companies may be less willing to insure homes in these affected areas than they have in the past. Some may continue insuring homes in the affected areas but charge higher rates.' He also notes that the flooding may rewrite flood zone maps, which can impact both the costs and availability of coverage.
2026 Prediction
Bhatt sees signs of stabilization. 'We may be entering a normal pattern where rates only increase slightly from year to year or even come down. This, in turn, may provide some relief to homeowners and home buyers.' However, he cautions, life can be unpredictable.
Buyer Tips
The LendingTree pro suggests shopping around for a lower rate and considering a higher deductible to save money. He also notes that 'It's good to avoid filing claims for relatively minor repairs. Insurance companies usually raise your rates after a claim of any size. If you have two or more claims within a short amount of time, your insurance company may drop you.'
It's better to payout of your pocket for damage of a couple thousand or less, he cautions. 'In the long run, you're usually better off saving insurance for large expenses you wouldn't otherwise be able to afford.'
You can also save on your premiums by making your home more disaster resistant, he notes. I've written about the Fortified hurricane and Wildfire Prepared Home programs. Even if you don't go for a full certification, you can let your insurer know about specific changes you've implemented to potentially save on your insurance coverage.
Chrane urges buyers to research down payment assistance programs like his to lessen their financial burden. 'Once their budget is set,' he suggests, 'they should talk with home insurance agents and compare quotes because premiums can differ by hundreds or even thousands of dollars annually for the same coverage.'
Lautz agrees that prospective buyers should be researching down payment assistance programs and considering overlooked neighborhoods.