Crunching Numbers and Dreams: Unmasking the Surprising True Cost of Homeownership in 2023

As mortgage rates soar to a 20-year high, the dream of homeownership seems to be playing hide-and-seek for many potential buyers. Yet, behind the scenes, existing homeowners are grappling with a less visible but equally daunting challenge – the escalating costs of maintaining a home. As we step into 2023, the true cost of homeownership is not just a number; it’s a rapidly climbing mountain. Let’s dig into the details.

Annual Hidden Costs

Entering 2023, the true cost of owning a home is climbing quickly. In addition to their mortgage payments, the average U.S. homeowner spends $17,459 annually on hidden costs. Those costs include:

$4,975 for utilities

$4,283 for maintenance

$3,890 for home improvements

$2,795 for property taxes

$1,516 for homeowners’ insurance

Given an extra $17,500 in annual expenses, about 90% of homeowners say the true cost of owning a home is higher than they originally expected.

Unveiling the Hidden Costs:

Property taxes                         33%

Making renovations                27%

Utilities                                    27%

Roof work                               25%

Maintaining the home’s          24%

Appearance                             23%

Homeowners insurance          23%

Appliance repairs                    22%

Upgrading appliances             21%

HVAC                                      21%

Yard work                                19%

Home cleaning                        16%

Foundation repairs                  15%

HOA Fees                                11%

It’s natural to wonder what homeowners are spending all that money on. Prices of construction materials have increased since 2020, and the cost of labor has continued to climb.

About 97% of homeowners have performed at least some maintenance work on their home.

The most common types of maintenance and repair tasks involve:

Painting and/or staining (55%)

Plumbing (e.g., leaky faucet) (48%)

Major appliance replacement (42%)

Water heater issues (39%)

Roof issues (37%)

Electrical issues (36%)

Major appliance repair (32%)

HVAC issues (e.g., furnace/air conditioning) (31%)

Gutter issues (27%)

Deck repair (25%)

Sewer/water line issues (20%)

Renovating and Remodeling Adds $3,900 to Homeowners’ Annual Costs

One of the underrated costs of owning a home is the amount many spend on home improvements and renovations. Anyone who’s upgraded a kitchen or bathroom knows just how expensive such remodeling efforts can become.

The average homeowner reports spending a whopping $3,890 on renovations and remodeling in the past year alone. That’s in line with a new report from Harvard’s Joint Center for Housing Studies, which estimates the cost at $4,000.

The Most Popular Home Renovations

About 95% of homeowners say they plan to take on some sort of major home improvement project over the next five years. About one-third are planning a kitchen (34%) or bathroom (33%) remodel, which often cost over $20,000 and $10,000, respectively.

The 12 most common home renovations being planned include:

Painting (47%)

Kitchen remodel (34%)

Bathroom remodel (33%)

New landscaping, fencing, and/or yard improvements (33%)

New windows (28%)

New or refinished flooring (28%)

Bedroom or living room remodel (24%)

New or refinished patio, deck, and/or porch (23%)

Adding a room (14%)

Basement remodel (14%)

Adding a bathroom (12%)

Pool installation (12%)

Sticker Shock: The Most Expensive Hidden Cost of Homeownership: Utility Payments

Anyone planning to buy a home needs to know about the biggest surprise cost of homeownership: utility bills. 3 in 10 homeowners (27%) say the cost of utilities is higher than they thought it would be before buying.

The average U.S. homeowner spends $4,975 annually on utilities such as electricity, water, cooling, and heating, according to the latest data from the Bureau of Labor Statistics.

That’s 2x what renters pay annually ($2,845), as houses are generally larger and require more resources and energy.

90% Say Owning a Home Is More Expensive Than Expected, Especially with Taxes and Insurance

In addition to maintenance, upgrades, and utilities, two of the largest expenses homeowners face are property taxes and homeowners’ insurance. The typical owner spends $2,795 on property taxes and another $1,516 on homeowners insurance each year — a combined total of $4,311.

When asked which costs of homeownership are higher than they anticipated, the most common answer from homeowners was property taxes (33%), followed by renovations (27%), utilities (27%), and roof work (25%).

In all, 90% of homeowners say some aspect of homeownership has been more expensive than they expected.

Homeowners are most likely to be caught off guard by the cost of:

Property taxes (33%)

Making renovations (27%)

Utilities (27%)

Roof work (25%)

Maintaining the home’s appearance (24%)

Homeowners insurance (23%)

Appliance repairs (22%)

Upgrading appliances (21%)

HVAC (furnace/air conditioning) (21%)

Yard work (19%)

Home cleaning (16%)

Foundation repairs (15%)

HOA fees (11%)

Average Cost of Property Taxes and Homeowners Insurance

Although home prices aren’t rising as fast as they were earlier in the pandemic, the increase in home values ballooned many homeowners’ property tax assessments.

The median property tax in Oakland County, Michigan is $3,573 per year for a home worth the median value of $204,300. Oakland County collects, on average, 1.75% of a property’s assessed fair market value as property tax.

https://www.tax-rates.org/michigan/oakland_county_property_tax

The average yearly property tax paid by Oakland County residents amounts to about 4.42% of their yearly income. Oakland County is ranked 146th of the 3143 counties for property taxes as a percentage of median income.

Although home prices aren’t rising as fast as they were earlier in the pandemic, the increase in home values ballooned many homeowners’ property tax assessments. Nationally the average annual residential property tax payment is $1,820 — 8% higher than the previous year, according to U.S. Census data.

The average annual cost of home insurance in Michigan is $1,345. That’s 26% less than the national average of $1,820. In most U.S. states, including Michigan, many insurers use your credit-based insurance score to help set rates.

85% of Homeowners Say Inflation Has Impacted the Real Cost of Homeownership

Inflation affects more than just gas and groceries. Utility prices and other costs have made a noticeable dent in homeowners’ finances over the past year.

9 in 10 homeowners (85%) say inflation has impacted the cost of homeownership, including 35% who say it has had a major impact.

Rising prices are stretching homeowners thin, threatening to land those without home warranty plans in trouble if faced with an unexpected bill. More than half of homeowners say they wouldn’t be able to afford a $3,000 emergency repair without going into credit card debt.

Silver Lining:

Despite the costs of homeownership, it is the fastest way to build personal wealth. In addition to the wealth-building benefits of homeownership, about 91% of homeowners say owning a home makes them proud, and 81% say homeownership is part of the American dream.

Bottom Line:

As the financial tapestry of homeownership unfolds, it’s clear that dreams come with a price tag. Yet, amidst the challenges, the rewards of personal wealth and the fulfillment of the American dream shine brightly. Homeownership in 2023 may demand more financial acumen, but for many, it remains an investment in a future adorned with the pride of calling a place one’s own.

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