Housing affordability remains one of the biggest challenges for the U.S. housing market. Over the course of 2024, the mortgage payment-to-income ratio reached the highest level since the early 1980s, when the housing market was last considered this unaffordable. When talking about affordability, the focus is on home prices and interest rates and resultant monthly principal-and-interest (PI) payments, but that is not the only concern.

Looking at the principal and interest and even adjusting for inflation, the typical mortgage payment on a median-priced home is now some 64% higher than it was at the onset of the pandemic. At the peak of unaffordability in the summer of 2024, the typical mortgage payment was almost 80% higher than in early 2020. A 30-year fixed mortgage gives homeowners certainty that the principal and interest portion of the mortgage payment will not change over time. 

There has been a growing concern around the surging cost of additional components of the mortgage payments that tend to be variable — such as property taxes, insurance, homeowners association fees and utilities. Together, the total mortgage payment is often called PITI, with the TI referring to taxes and insurance. 

Over the last few years, it’s become apparent that these additional homeownership costs can increase significantly over time, shocking homeowners — particularly those with a fixed income and/or lower income. The rise in the cost of insurance premiums has been a particular concern in the last couple of years. 

For example, according to a recent Cotality analysis, insurance costs rose three times the rate of principal, interest and taxes. That means the cost of insurance premiums has risen about 50% since 2019 nationally, and in some areas prone to natural disasters, insurance premium costs doubled. Prior to the pandemic, insurance premiums did rise, but the increases generally only kept up with the rate of inflation, or about a 3% increase annually. In 2024 alone, insurance increased by about 14%, and the increases are expected to remain elevated, forecasted at 10% in 2025 and 8% in 2026. 

“In addition to rising insurance costs, property tax obligations have also gone up, reflecting growth in home prices in recent years.”

In addition to rising insurance costs, property tax obligations have also gone up, reflecting growth in home prices in recent years. Nationally, property taxes were up about 27% from 2019 to 2024, and in some markets, the increase pushed up to 50%, such as in Colorado. 

As a result of rising taxes and insurance, an increasing share of homeowners with a mortgage pays more for the taxes and insurances portion of their mortgage than the principal and interest — currently about 8%, up from 2% a decade ago. 

This poses a risk to mortgage servicers and a concern to homeowners who are either on a fixed income or have limited resources to adapt to higher homeownership expenses. A Cotality analysis of escrow shortages in 2023 in Florida, California and Texas showed that 55% of escrow accounts in Texas had shortages (due to taxes and/or insurance), 40% in Florida and 13% in California. Note that property tax increases have been relatively higher in Texas, which could drive the higher share of accounts in shortage versus the other two states. 

As non-mortgage expenses play a bigger role in affordability, it is important to understand which markets are seeing these costs contribute to overall mortgage payments. These markets will be more vulnerable to rising expenses and their impact on budgets.