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Mortgage payments are composed of principal, interest, taxes and insurance (PITI), a concept drilled into every new agent’s head. For the first time in history, soaring “TI” costs have made homeownership less affordable than any time since the 1980s.
Not only is the squeeze hitting buyers hard, but now existing homeowners may face losing their homes if they can’t afford the skyrocketing prices. All agents and homeowners need to be concerned.
I recently interviewed Rick Sharga, the CEO of CJ Patrick, a Market Intelligence Company, a leading expert who tracks how current trends will impact the real estate market.
In a previous interview, Sharga cited his growing concern about how soaring insurance prices could negatively impact not only buyers and sellers, but current homeowners as well.
Sadly, the recent spate of disasters has exacerbated the problem. Here’s Sharga’s assessment of how mortgage rates, increased housing values, as well as exploding “TI” costs will impact buyers and sellers as well as existing homeowners this year.
The worst affordability in 40 years
Sharga cited the following factors as major contributors to today’s affordability crisis.
- Prices increased between 20 percent to 40 percent in many areas as people sought larger properties. At the same time, the Federal Reserve cut the Fed Funds interest rate to zero. The result was a “feeding frenzy,” which dropped interest rates down into the two perecent to three percent range and resulted in 6 million home sales in 2021.
- Fixed-rate mortgages usually provide the homeowner with a predictable monthly payment. However, soaring values and the resulting increase in property taxes on an annual basis have now become a major part of the affordability problem.
The result? “If you look at the numbers published by the Atlanta Federal Reserve that does a home affordability index, there’s $40,000 gap between median household income versus the median household income required to afford a home,” Sharga said.
“The yields on 10-year US Treasuries have skyrocketed recently [4.49 percent on Friday, Feb. 7, 2025], the basis upon which 30-year mortgages are built. Typically, the spread is about 1.5 to 2.5 points right now above those bond yields and mortgage rates.”
Based on these numbers, Sharga believes that we will be looking at 7 percent to 7.5 percent interest rates for the time being.
“Maybe I’m being a bit too optimistic here, but while I do think mortgage rates will come down a little bit between now and the end of the year,” Sharga said, “in all likelihood, we don’t get down much past the mid-sixes in terms of interest rates on 30-year loans.”
Sharga cited additional factors keeping rates higher that include that the economy is performing too well, the jobs reports have been off the charts, and the GDP continues to grow.
“If the Fed reduces the rate too much, it becomes inflationary. So, it’s a double whammy for people looking to buy a house — home prices are higher and mortgage rates are higher than they’d like, and it makes it really difficult for people to be able to buy the house they want,” Sharga said.
Property taxes: The 1st part of the ‘TI’ double whammy for sellers, buyers and existing homeowners
Due to the increases in property values that Sharga put at somewhere between 3.5 percent and 4 percent for 2024, higher property taxes have become part of the new affordability problem. Given that so many people are struggling with credit card debt, inflation and living paycheck to paycheck, even a small uptick in property taxes may put them at risk of losing their home.
For 2025, Sharga is forecasting an increase in values between 2.5 percent and 3 percent. Because that’s based on a higher baseline from 2024, the sticker shock from a 20 percent to 40 percent property tax increase may be more than many homeowners can handle, especially considering how high inflation has been.
This is especially problematic in the states that don’t reassess property values every year.
- According to TaxFoundation.org, only nine states reassess their property taxes annually, and five states, plus Washington, D.C., reassess property taxes at least once every two years. Nine states have “no provision” for property tax reassessment.
- The biggest sticker shock will occur in the 20 states that only reassess their owners every three years (or in some cases only once every five to 10 years). This is especially problematic in states and cities where there has been substantial appreciation since their last reassessment.
- To illustrate this point, if you paid $300,0000 for your house and it has gone up 30 percent in the past three years, your new tax valuation would be $390,000. If your tax rate for your state was 1 percent, your property taxes would increase from $3,000 per year to $3,900.
Insurance: The 2nd part of the new TI double whammy
For the past couple of years, obtaining insurance has become a huge issue. In some cases, as Sharga observed, some people with very low interest loans or who have owned their property for a long time, may now be paying more in property taxes and insurance than their mortgage payment.
In fact, both Sharga and I have both seen major increases in our insurance policies. Sharga lives in California. His rates have doubled over the past two years, and he has had to settle for a policy with a higher deductible with less coverage.
Because Texas is the hailstorm capital of the world, insurance rates in Texas have also soared. In January, my insurance carrier doubled both my house and my auto insurance policies. Fortunately, I had used an insurance broker, and he was able to save me $4,600 on my two policies with a different carrier.
10 ways agents can help reduce the impact of the TI double whammy
For buyers
- Educate buyers on tax and insurance costs upfront.
- Work with a mortgage broker rather than a single direct lender. That way, if there’s a problem with one lender during the transaction, the mortgage broker can easily update their current loan package and place it with a different lender.
- Know where the flood zones, fire-prone areas and special hazard zones are in your market area. To significantly reduce their insurance costs, encourage buyers to look for homes outside these areas.
- Suggest homes that have the best hurricane ratings or, if you’re in a fire-prone area, suggest homes that have concrete tile or metal roofs, are built with fire-resistant materials and have been adequately cleared. (The brush at my former house off Mulholland Drive was cleared 300 feet from the structure. I also planted my hillside with ice plant, a succulent that is considered to be fire retardant.)
- If you’re showing condominiums, verify the cost of the insurance fees for each property. Also, make sure your buyers aren’t purchasing in a building that is more expensive to insure as compared to neighboring properties. (This usually shows up in terms of higher HOA fees.)
For sellers
- If your listing has lower property taxes or insurance costs because it’s outside nearby flood or fire zones, highlight that in your listing description and other marketing.
- Showcase home safety upgrades that reduce insurance costs such as fire and wind resistant roofs and windows.
For existing homeowners
If property taxes have jumped, encourage homeowners to file an appeal. You provide the CMA and other supporting data for their case. Alternatively, encourage them to hire a firm that specializes in helping homeowners obtain property tax reductions for a fee. (My experience has been this is typically 25 percent.) In states that do not reassess often, this can result in savings over several years.
Has one of your sellers turned 65? Does one of them have a disability, especially due to military service? Have they filed their homestead exemption? Did the property incur some sort of zoning change or damage that reduced its value? Familiarize yourself with the various ways homeowners may be able to reduce their valuations for tax purposes and encourage those you work with to take advantage of them.
Encourage homeowners to avoid “auto renew” on their insurance policies and shop prices every year instead. Also, have them consider higher deductibles to lower costs as well as bundling their home and auto insurance together to reduce costs.
Crumbling affordability
When “TI” costs explode, affordability crumbles, creating an entirely new set of risks for buyers, sellers and existing homeowners. Whether you’re a new or experienced agent, the strategies above can be a lifeline that keeps their dreams of homeownership alive and well.
Bernice Ross, president and CEO of BrokerageUP and RealEstateCoach.com, and the founder of RealEstateWealthForWomen.com is a national speaker, author and trainer with over 1,500 published articles.
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