Buying a Home Has Obstacles but Is Still Worth It!

April 24, 2024

It is well documented that wannabe home buyers are confronted with stubborn mortgage rates and low numbers of homes for sale. But over the last several months Orion’s brokers have seen another villain rear its ugly head: homeowner’s insurance costs.

For our brokers who are watching rates, and you all are, last week's move higher was driven by stronger-than-anticipated economic data, which, coupled with hawkish “Fedspeak,” led market participants to reduce their interest rate cut expectations as they realized that the U.S. Federal Reserve is in no rush to ease monetary policy. This outweighed any potential “flight to quality” that would normally help interest rates in the United States given geopolitical concerns over Israel and Iran, and Ukraine.

In speech after speech, and in publications, Fed Presidents and members of the Federal Open Market Committee have made it clear that policymakers are in no hurry to change their strategy that began in March of 2022. The contractionary monetary policy path appears like the correct one to be on, given three consecutive months of stronger-than-expected inflation readings. "The recent data have clearly not given us greater confidence and instead indicate that it's likely to take longer than expected to achieve that confidence."

This week, in terms of scheduled economic news, will be the latest U.S. personal income and outlays report, due Friday. Orion’s brokers should know that the data will also contain readings on the Federal Reserve's preferred inflation gauge: the personal consumption expenditures price index. Also, Thursday will see the publication of the first estimate of U.S. GDP growth in Q1. So, interest rates may fluctuate some, but don’t look for any steep move lower or higher. In addition, following last week's developments between Israel and Iran, market participants will likely continue to be on edge as they keep an eye on the situation in the Middle East. Treasury yields and oil will be on watch.

Brokers know that the Federal Reserve does not set mortgage rates, but the same factors influence both the Fed and mortgages. Mortgage rates sailed past 7 percent, likely dampening homebuying appetite during the market's critical spring homebuying season, according to Freddie Mac. That's an increase from the previous week when it averaged 6.88 percent. A year ago, the 30-year fixed-rate mortgage averaged 6.39 percent, so although it is higher there isn’t an enormous change. The average rate for a 15-year mortgage was 6.39 percent, up from 6.16 percent last week and up from 5.76 percent last year.

So yes, mortgage rates continue to be one of the obstacles from buying a home, as does a limited inventory of places for sale. But in the last several months another cost has grabbed the headlines: home insurance. Rising insurance costs from coast to coast have impacted homeowner affordability. According to a recent Insurify report, home insurance premiums for a $300,000 property in the U.S. increased 12 percent in 2023 to an average of $1,770 per year.

This is even more pronounced for homes in areas at risk of more climate-related damage, as owners there tend to pay higher premiums. For example, homeowners in Florida, a state battered by high-cost natural disasters like hurricanes, wind, and flooding, pay an annual average of $9,213. Americans living in Vermont, a "very low" or "relatively low" risk state in FEMA's National Risk Index, pay an average rate of $914.

It is not only the cost of insurance, but finding an insurer can be a problem. The cost of climate-related catastrophes has pushed several major home insurers to stop renewing certain policies or leave states like Florida and California entirely. The problem has caught the attention of government officials and regulators… stay tuned.

Yet brokers know that people will continue to buy homes, despite the obstacles! Although Orion’s AEs can only provide advice regarding insurance, we have some very good mortgage programs to help overcome high monthly payments. As your AE!

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