A telling new analysis of rising home maintenance costs from the real estate listing service Zillow, in conjunction with Thumbtack, which tracks the cost of local services, should remind those promoting the virtues of homeownership that it’s key for new buyers to be prepared and capable owners. At the same time, the findings tell yet another story of how the cost of government in “blue” coastal cities pushes homeownership out of reach — even for those who are otherwise well-prepared.
The Zillow-Thumbtack report should be required reading for those aspiring to homeownership — or for elected officials who would use policy to enable it. The 50-year mortgage being suggested by some in the Trump administration might reduce monthly payments by stretching them out, but it would not help with the fact that, per Zillow and Thumbtack, “insurance, maintenance and property taxes can cost the average homeowner $15,679 annually.” Those costs are rising 4.7%, faster than both inflation and household incomes, which increased 3.8%.
Such hidden — or at least underemphasized — costs show that a lack of savings or financial wherewithal can mean ownership won’t be sustained, even for those who have the down payment to qualify. This is one of the most important lessons of the 2008 financial crisis, when federal policies encouraged “affordable housing mandates” for subprime buyers through regulation of the mortgage-purchasing giants Fannie Mae and Freddie Mac.
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Those policies helped spark a collapse in mortgage-backed securities when new owners found they couldn’t afford their payments and fell into default or delinquency. Not only were global markets pulled into collapse, but neighbors of those lured into ownership by easy credit were harmed when homes became dilapidated or vacant. Memo to both the White House and progressive advocates of easy credit: Homeownership is not for everyone.
Rising tax and maintenance costs likely help explain a current trend reminiscent of the housing crisis: a rising mortgage delinquency rate for one-to-four-family homes. The Mortgage Bankers Association reports that the rate has risen to 3.99%, up seven basis points over the past year. But government-backed easy credit, provided by the Federal Housing Administration, is leading to even worse outcomes. Low down payments — just 3.5% — can shoehorn those of modest means into the buyer’s market, but hidden costs contribute to collateral damage: a 10.78% delinquency rate.
Among the states with a high FHA delinquency rate is New York, where high property taxes help explain the trend. Five of the 10 U.S. counties with the highest property tax bills are in New York — Westchester, Rockland, Manhattan, Nassau and Putnam. Those bills can be eye-popping: the median in middle-class Rockland County tops $14,000 a year.
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Democratic-run cities such as Houston and Atlanta also show high delinquency rates.
All of which is to say that sustainable homeownership is tied to factors far beyond a down payment and a mortgage. Owners must be prepared for the full range of costs — and understand that, in blue cities especially, they’re footing the bill for the high costs of unionized workforces and their pension and healthcare obligations. As commercial real estate continues to struggle, cities such as Chicago, San Francisco and New York will inevitably ask residential owners to shoulder the burden for services — many of them poorly delivered.
Total additional annual carrying costs — not just taxes but insurance and maintenance — are also highest in blue coastal areas: $24,000 in New York City, $22,000 in San Francisco and $21,000 in Boston. Home insurance costs, too, overlap with political leadership, rising the most in blue cities such as Atlanta, New Orleans and Sacramento. It’s no wonder residents of these areas are voting with their feet, as their states continue to lose population.
Potential owners, in other words, should be mindful not just of interest rates but of data from the Tax Foundation regarding median property taxes by state. Illinois ranks first, with the highest property tax bill; neighboring Indiana ranks 27th and New Jersey ranks second while neighboring Pennsylvania ranks 13th. Zillow has provided a useful window into the collateral costs of homeownership.
Potential buyers should be prepared.
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