Why homeowners insurance is critical to the housing market

If you’re purchasing a home with a mortgage, your lender will require you to buy a homeowners insurance policy. The lender is taking a risk by lending you hundreds of thousands of dollars or more to purchase a home. One way to mitigate that risk is by requiring a homeowners insurance policy. If something happens to your home, it can be repaired or rebuilt, thus protecting the lender’s investment.

Without this form of protection, the requirements for obtaining a loan could be more stringent.

In an article for the Joint Center for Housing Studies of Harvard University, Steve Koller, a postdoctoral fellow, wrote, “In short, insurance helps make homeownership possible and preserves hard-earned home equity when hazards strike.”  

In other words, home insurance is what allows mortgage companies to take the risk of giving homeowners loans.

How do rising insurance costs impact the housing market?

As our research shows, the price of homeowners insurance is already having an impact. Approximately 21% of survey respondents either backed out of a deal or had a sale fall through last year due to the cost of homeowners insurance.

When calculating the cost of a home, many people consider the principal, interest, taxes, and insurance (PITI). Annie Cefaratti, CEO of The Busy Blondes real estate firm in Reston, Virginia, said most of the increase in housing costs is based on interest rates, taxes, and the price of insurance.

As the amount of money needed to buy a home increases, affordability decreases. Sierra Stoney, senior research analyst with the Federal Reserve Bank of Richmond, said in an interview posted on its website, “When first-time homebuyers are buying their home, most of the time they're going to want to pay with a mortgage, and most mortgage brokers are going to require homeowners insurance. So, this is going to be a cost that every person who's financing their home with a mortgage is going to face in most circumstances.”

How do rising insurance premiums impact home affordability?

When the cost of homeowners insurance rises, it puts pressure on what buyers can afford to pay for a home. “What we've been hearing is that for new homebuyers, homes might not be affordable based on both current price and mortgage rate conditions. High monthly insurance payments could push housing expenses over that 30% threshold that we look to when we think about homeownership affordability,” Stoney said.

She clarified that households that spend more than 30% of their income on PITI are considered “house-burdened.” Being house- or cost-burdened limits the amount homeowners can spend on necessities such as utilities, transportation, and food.

Are rising insurance costs changing homebuyer behavior?

Our 2025 Insurance Sentiment survey shows that the rise in premiums affects homebuyer behavior. Among those who attempted to buy or sell a home:

  • 47% of people who were either shopping for or selling a home in 2024 experienced some sort of difficulty with home insurance.
  • 26% of survey respondents who shopped for a home said they considered moving elsewhere because of the cost of insurance.
  • 12% backed out of a deal to purchase a home because of the cost of homeowners insurance. 
  • 9% said they had a home sale fall through last year for the same reason.

What is causing home insurance premiums to increase?

A Consumer Federation of America (CFA) study released this April, found that homeowners insurance premiums rose in 95% of U.S. ZIP codes between 2021 and 2024. One-third of those ZIP codes saw premiums rise by over 30%. And it’s not just in states like California or Florida, but in unexpected parts of the country.

Percentage-wise, the hardest hit states were Utah, which saw a 59% premium spike, and Illinois, which saw premiums increase by 50%. “This indicates that rising insurance costs are not just a coastal problem or limited to a few areas. In fact, the Midwest will likely be especially impacted (and is already seeing some impact) because of the increasing frequency of thunderstorms, hailstorms, tornadoes, and other extreme weather,” says Michael DeLong, research and advocacy associate with the CFA and co-author of the study.

“But no part of the country will be exempted from this,” he says.

The reasons for premium increases include expensive global reinsurance, rising building materials costs and weak regulatory oversight.

Reinsurance is when an insurance company cedes part of the responsibility for a policy to another carrier, known as the reinsurer. Insurance companies must have enough funds to cover the policies they issue. But if an insurer farms out some of that responsibility to a reinsurer, it can take on more business while still being able to satisfy regulators that it can cover all of its responsibilities for policyholders.

ProCore, a company focused on supporting the construction industry, reports that the average cost of lumber has increased 19.3% over the past six months. The average price of cement has risen by almost 9% during the same period.

One of the CFA study’s recommendations includes strengthening regulatory oversight of homeowners insurance rates and underwriting practices, ensuring “...that homeowners get

relief when they invest in strengthening their homes and, more generally, that insurers do not exploit temporary inflationary pressures or overestimate other exposures to charge excessive rates.”

What to do if you can’t get homeowners insurance in 2025

If you’re looking to purchase a home and are having trouble finding a homeowners insurance policy, you can do a few things to improve your chances. 

One option is to work with a licensed independent insurance agent or broker. These professionals can help you navigate the insurance market and are knowledgeable about the different companies and policies available. 

Another option is looking into a FAIR plan. FAIR plans are often the last-resort option offered by the state where you live. These plans will differ from state to state in their availability, what perils they cover, and coverage limits. Many may require proof that you cannot purchase insurance through traditional insurers.

FAIR plans typically offer limited coverage and may be more expensive than a traditional insurer. 

What should home buyers and sellers know about insurance?

One of the most important things buyers and sellers should know about insurance is that it is part of the homeownership package if you have a mortgage. When determining how much you can afford, you should include calculations for homeowners insurance, taxes and interest.

Understanding the role homeowners insurance plays in what you can afford is vital. Your dream home may not be a great long-term investment if it is in an area prone to natural disasters, such as rising sea levels or flooding. Your homeowners insurance price will likely increase over time as the risk intensifies. 

A local insurance agent or broker can help estimate insurance costs, especially if you live in a high-risk area prone to hurricanes, flooding, wildfires and other dangers. They can also help you understand what coverage and types of policies you may need and what is available. 

For example, if you live in a flood zone and have a federally backed mortgage, you may be required to purchase a flood insurance policy in addition to a standard homeowners insurance policy. Or, if you live in a region prone to severe windstorms, some companies may exclude wind damage from a standard policy, which means you may need a windstorm endorsement or policy. 

Additional coverages provide extra financial protection if something happens to your home, but they can also increase the cost of homeownership. 

Frequently asked questions:

Can I buy a home without homeowners insurance?

Most mortgage companies will require you to purchase homeowners insurance when buying a home. So, unless you’re paying the purchase price upfront in cash, it is unlikely you’ll be able to buy a house without getting a homeowners insurance policy. Cefaratti cautions that she “...would never suggest owning a home without homeowners insurance. It is simple risk management. Hence, the reason lenders require it.”

How can I lower my home insurance premium?

There are several ways you can lower your insurance premiums. 

  1. Shop around. Not all insurance companies evaluate risk in the same way, and you may find a company that offers better coverage at a lower price than another. We recommend getting quotes from at least three insurance companies.
  2. Choose a higher deductible. If you file a claim, a higher deductible will decrease the money an insurer will have to pay out. However, you’ll want to make sure that you select a deductible that you can afford to pay if needed.
  3. Ask about discounts. Most insurance companies offer home insurance discounts. Some common ones include bundling policies with the same insurer (like homeowners and car insurance), installing a safety system, and opting for paperless billing.
  4. Limit the risk. Insurance companies offer discounts if you upgrade your property. This could include installing an impact-resistant roof, adding a security system or updating the electrical and plumbing systems to meet current building codes.

Will home insurance costs go down in the future?

Unless the factors influencing the increases in homeowners insurance change, costs are unlikely to go down in the near future.

“It is difficult to make predictions, but we think that rising homeowners insurance premiums are going to continue through 2025 and afterward. Over the last several years, premiums have gone up well above the rate of inflation, and this shows no sign of stopping,” DeLong says.

Methodology

Insurance.com surveyed 1,100 people with home insurance about their coverage. They were asked if they bought or sold a home in the last year and if, during that process, they:

  • Had a sale fall through because of the cost of home insurance
  • Backed out of a deal because of the cost of home insurance
  • Considered moving somewhere else because of the cost of home insurance
  • Had no home insurance issues

Sources

Federal Reserve Bank of Richmond. "The Rising Cost of Homeowners Insurance and Its Impact on Housing Affordability." Accessed April 2025.

Consumer Federation of America. “Overburdened: The dramatic increase in homeowners insurance premiums and its impacts on American homeowners.” Accessed April 2025.

ProCore. "Lumber Prices." Accessed April 2025.

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