The Real Reason why Insurance Costs Have Become Deal-Breakers for Homebuyers

Amidst things people consider before buying a home, insurance has transitioned from a peripheral concern into a significant factor for homebuyers, thanks to escalating insurance premium costs. "Before, insurance was kind of an afterthought. It was just a box to check off," said Paul Scalone, a San Diego-based Compass agent and the owner of Dignified Insurance Services. "Now we are looking at a two to three business-day process and the buyer may not like the numbers they get back."

Surprisingly steep insurance premiums are prompting some buyers to reconsider their chosen properties. This trend reflects sheds light on the need for buyers and agents to navigate these financial considerations with greater attention and care.

Danny Thompson, the vice president and co-owner of Goosehead Insurance Sexton-Thompson Agency commented on the situation, saying, "The rate increases are dramatic."

A report by S&P Global found that on average, homeowners are facing an increased interest rate of 11.3% in 2023. Farmers Insurance Group of Cos. and Liberty Mutual Holding Co. Inc. came into the spotlight for recording the highest calculated weighted average rate increase at 19.4% and 17.2%, respectively.

On analyzing the findings on a state basis, Texas emerged as the one recording the highest interest rates of 23.3% followed by Arizona at 21.8% and Utah at 20.3%. Over the last five years, people have seen a 34% increase in insurance rates with Progressive Insurance company soaring high at 55.3%.

In these years, Texas has seen an overall increase of 60% followed by Colorado at 57.9%, and Arizona at 52.9%.

"Our Realtor partners are getting us involved earlier on in the transaction, to get the insurance quote as early as possible in the transaction, and that has helped them considerably because now they can make a decision as far as whether or not the property is one they want to move forward with," Thompson shared. 

The rising insurance premium rates are primarily attributed to the mounting losses experienced by insurance companies, with 2023 marked as one of the worst years for these entities since 2011, according to the Insurance Information Institute.

Among the factors driving this surge in rates is the substantial increase in the cost of rebuilding homes, exacerbated by inflation rates soaring up to 55%. Besides financial considerations, natural calamities such as storms, wildfires, and other climatic shifts are causing significant damage.

Despite the uptick in rates, insurance companies are still recuperating, with projections indicating that costs may escalate to at least 10-13% in 2024.

Meghan O. Clarkson, a Long & Foster Real Estate agent, highlights the challenges faced by buyers. "I’ve had a few instances where an insurance company wouldn’t insure the house or another one would, but the premium would be $5,000 a year. But if there was a new roof, it would be $2,800 a year, so we ended up renegotiating with the seller for a new roof," she said.

Real estate agents are also demonstrating increased empathy towards buyers in light of these challenges, initiating discussions about insurance options much earlier in the home buying process than previously observed.