The hidden costs of homeownership—such as property taxes, property insurance, utilities, internet and cable bills—can add more than $20,000 to a homeowner’s annual expenses, according to a new Bankrate study.
Home prices in the U.S. have surged by almost 40 percent over the past five years, so for Americans scrambling to buy a home, this additional financial burden means the dream of homeownership can easily turn into a nightmare even for those who manage to realize it.
Not all U.S. homeowners are facing the same costs, however. For those living in the South and the Midwest, the hidden costs of homeownership are just a little bit lower than for those on the East and West Coasts—with California and New Jersey among the most expensive in the country for hidden homeownership costs.
Yet Another Blow for Homeowners
Home prices have shot through the roof since the pandemic, when historically low mortgage rates sparked a homebuying frenzy across the country. At the time, inventory was chronically low since developers significantly underbuilt following the 2008 crash.
The median sale price of a typical U.S. home was $441,526 in April, up from $298,409 five years later.
Sky-high home prices and elevated mortgage rates, which have been hovering between the 6 and 7 percent for the past couple of years, have pushed many prospective homebuyers in the U.S. to the sidelines of the market, where most of them remain today despite rising inventory at the national level. Other rising housing costs, such as those mentioned by Bankrate, are also to blame.
Homeowners insurance has been rising across the country over the past few years as climate change makes natural disasters more frequent and more severe, and carriers struggle to correctly price the risk for policyholders. Property taxes have also surged in step with home values, hitting older homeowners the hardest.
What Are the Hidden Costs of Homeownership?
When budgeting for a home, many first-time buyers and some homeowners focus almost exclusively on mortgage payments, Bankrate home-lending expert Linda Bell told Newsweek. But the real cost of homeownership, she said, “extends far beyond that monthly check to the bank.”
According to Bankrate’s study, the average annual costs associated with owning a single-family home in the U.S. amount to $21,400. Of these, $8,800 are for home maintenance, $4,494 for utilities and energy, $4,316 for property taxes, $2,267 for home insurance, and $1,515 for internet and cable.
While these additional expenses have always existed, the hidden cost of homeownership has risen steadily for the past few years. This increase, Bell said, reflects inflation and higher prices for almost everything, including supplies and labor.
“Some homeownership costs directly relate to home prices,” Bell said. “As home prices rise, so do repair costs. Homeowners’ insurance premiums are up for a similar reason: The more valuable a property, the more it costs to cover it.”
Where Are Homeowners Paying More or Less?
Homes on the East or West Coast normally carry larger price tags compared to those in the South or Midwest, and they also mean higher ongoing costs.
“Simply put, where home prices are high, the overall cost of living and owning a house tends to be higher, too, which means larger property tax bills, more expensive insurance policies and higher maintenance budgets,” Bell said.
“Unsurprisingly, the top 10 states for hidden costs, like California and New Jersey, are among the most expensive states for home maintenance costs and property taxes,” she continued.
Hawaii tops the list of states with the highest hidden housing costs, at $34,573. California ($32,262), New Jersey ($29,751), Massachusetts ($29,277) and Washington ($27,444) round out the top five.
“The Aloha State always seems to top ‘high cost of living’ lists,” Bell said. “Because it’s an island, so many things have to be imported from the U.S. mainland. Space is highly limited, and Hawaii severely restricts urban development, too. As a result, there’s a housing shortage, and homes are extremely expensive.”
Although Hawaii’s property tax rate ranked only as the 15th most expensive, its high property values result in a sizable tax bill. Hawaii also has the nation’s highest energy and utility costs and is the most expensive state for home maintenance, according to the Bankrate study.
New York was not included in the study because of data limitations.
According to the study, the least expensive states in the country are West Virginia ($12,579), Mississippi ($14,810), Indiana ($14,903), Missouri ($15,349) and Arkansas ($15,362).
Homeowners in the Midwest and South usually face lower hidden homeownership costs because they generally have access to more affordable home prices and a lower cost of living.
“When the home itself costs less, everything tied to it—like property taxes, home insurance and upkeep costs—is usually more manageable,” Bell said.
She added, “We found that the 10 states with the lowest hidden homeownership costs—like West Virginia, Mississippi and Indiana—have home maintenance budgets and property tax rates that fall well below the national average.”
What Effects Do These Hidden Costs Have on Homeowners?
Hidden costs can take “a big bite” out of a household budget, Bell said, and even cause families to spiral into debt.
“These expenses are easy to overlook, especially for first-time buyers who may be more focused on the down payment and monthly mortgage payment,” she said.
The good news, however, is that many of these hidden costs are regularly occurring expenses and can be estimated in advance, Bell said. For those costs that are less predictable, homeowners should make sure to have money saved in an emergency fund that they regularly contribute to.
“That way,” Bell said, “you avoid the syndrome of being ‘house rich, cash poor.'”
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