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In 2024, the U.S. recorded 27 weather and climate disasters that incurred losses of more than $1 billion, the second-highest total for any year on record.
It also marked the 14th consecutive year in which the U.S. experienced 10 or more billion-dollar disasters and the fifth straight year in which at least 18 such disasters occurred. Between 2015 and 2024, the U.S. recorded 190 separate natural disasters with at least $1 billion in losses, according to data from the National Centers for Environmental Information.
With the uptick in the severity and frequency of these natural disasters, as well as the rising costs to rebuild and reinsure, more real estate professionals and consumers are finding homeowners insurance to be a far greater concern than ever before.
“As a housing economist, insurance costs and the effect of insurance on the housing market is not something we’ve ever really worried about,” Selma Hepp, chief economist at CoreLogic, told attendees at HousingWire’s Housing Economic Summit on Wednesday.
“When we talked about affordability, we talked about mortgage rates and supply and demand, but never insurance, because that was considered a constant.”
That has changed. CoreLogic data shows that the percentage of mortgage borrowers who pay more for their taxes and insurance than their principal and interest has risen from 2% roughly a decade ago to nearly 10% today.
Additionally, in the past five years, CoreLogic data shows that home insurance costs have risen over 50% — including 55% in Texas, 57% in Illinois, 60% in Nebraska and 62% in Arizona.
“Now, affordability increasingly depends on non-mortgage components of a total monthly payment,” Hepp said. “Property taxes, insurance and utilities — which I think are only going to go up as energy costs increase with all the data centers being built with huge energy needs — are all going to impact the rising cost of the variable parts of a monthly mortgage payment.”
Hepp noted that while states like California frequently make headlines for their homeowners insurance challenges, the average premium cost there is roughly $1,500 per year due to regulations put in place by the state’s insurance regulator.
By comparison, CoreLogic’s data shows that the average annual premium is between $4,000 and $5,500 throughout much of “Tornado Alley,” which encompasses states like Texas, Oklahoma, Kansas and Nebraska.
“Almost half of the claims insurers see are driven by hail and wind, which is correlated with the areas in the middle of the country,” Hepp said.
When it comes to what’s causing the rapid rise in insurance costs, Hepp sees six key drivers.
The first is the frequency and severity of natural disasters. CoreLogic’s data shows that this has resulted in a 53% uptick in losses over the past 10 years compared to the prior decade.
“I’ve personally experienced the LA fires recently, and that natural disaster cost is estimated, just for insured properties, to be almost $45 billion,” Hepp said. “If you take into account all of the economic knock-on effects, it adds up to almost $200 billion in cost.
“And only a few months before that, we had the hurricane come through the west coast of Florida and into North Carolina, which cost over $30 billion.”
Although the severity and frequency of these large-scale natural disasters have increased, the number of people insuring properties and living in areas prone to natural disasters have increased rapidly in recent years, another factor that’s contributing to rising insurance premiums.
Hepp also sees construction costs and reinsurance costs as major contributors to the insurance affordability issue.
“Cumilative inflation is up about 20% to 30% since the onset of the pandemic, while construction costs have actually gone up 44% since then, and that is for both material costs as well as labor,” Hepp said.
She also noted that state regulations, such as those in Florida, have caused some insurers to leave the state. This gives consumers fewer choices, resulting in a large concentration of high-risk properties being covered by the state insurer of last resort, which also drives up premiums.
With premiums rising across the country, Hepp said Americans will begin seeing these costs reflected more frequently in home prices.
“We are already seeing that, actually, in places like Cape Coral or the Gulf Coast of Florida, where home prices are declining due to insurability and lack thereof,” Hepp said.
CoreLogic conducted a thought experiment using nationwide data and found that if home prices decline by 10%, 2.4% of mortgages would be underwater. If prices decline by 20%, the share grows to 6%.
“That actually is not that bad considering that 40% of homes were underwater coming out of the Great Financial Crisis,” Hepp said. “So, on the national level, it is not that bad of a story, but again, there will be a lot of variation at the local level. And in places where people have less equity, there is a higher probability that people lose equity and lose their homes.”
