The average monthly housing payment hit an all-time high in August, due mainly to rising insurance costs, which have been increasing at three times the rate of principal, interest and taxes, according to the latest Mortgage Monitor report from ICE Mortgage Technologies.
The average monthly payment (principal, interest, taxes and insurance, or PITI) among active mortgages hit a record $2,070 in August – up $140, or 7.2%, compared with August last year and up $399, or 19.3%, since the start of 2020.
The average PITI on loans originated in the last two years is $600 per month higher than that of 2020/2021 vintage mortgages, with two-thirds of each payment devoted to paying down interest, according to the report.
In contrast, just 12% of the monthly payment among 2023/24 mortgages goes directly toward principal reduction – less than half the comparative average for other recent vintages.
“All in, accounting for both fixed and variable inclusions, the average payment among U.S. mortgage holders hit a record high of $2,070 in August,” says Andy Walden, vice president of research and analysis for ICE Mortgage Technology, in a statement. “That’s about $140 more than at the same time last year, and up nearly $400 since the beginning of 2020 – a more than 19 percent increase from pre-pandemic times.
“When you peel back the layers on the data, a clear delineation appears between those fortunate enough to have taken out their mortgages before the Fed began to raise interest rates in 2022 and everyone who’s taken one out since,” Walden says. “For this second group, a historically outsized share of their total mortgage payment is covering interest, with very little – even considering the young age of the loans – going towards principal.”
ICE notes that although older loans have lower PITI, 35% of those payments go toward variable costs, such as taxes and insurance, that are at risk of increase, even as principal and interest components remain fixed.
All aspects of mortgage payments are rising as home prices, loan balances, interest rates and taxes have trended higher, with average principal, interest and tax payments up 15-17% since the start of 2020.
But of all the related costs, homeowners insurance insurance has been rising the fastest.
“While principal, interest, and taxes have all increased in the 15 percent to 17 percent range since the beginning of 2020, property insurance is up 52 percent over the same time span,” Walden says. “And, yes, higher home prices logically lead to higher-dollar policies; that’s why looking at the cost for every $1,000 of coverage gives us such critical, apples to apples, context. Not only are homeowners paying 12% more today for the same dollar amount of coverage than they were, on average, from 2013-2022, but they’re also insuring a smaller share of the property’s underlying value. Given that coverage amounts are based not on a property’s market value, but its replacement cost, the average policy has also gone from covering over 100 percent of the average home’s value back in 2013-2015 to just 88 percent today.”
Homeowners insurance costs have, as expected, increased the most in areas prone to storms and natural disasters.
“Given the rising costs of homeowner’s insurance in many areas of the country, it’s hardly surprising that premiums now make up more than 9.4 percent of monthly obligations on mortgaged single-family homes across the U.S.,” Walden adds. “That’s up from an average of less than 7.7 percent from 2013-2020 and the highest share on record. Of course, in higher-risk areas such as New Orleans, the share of the mortgage payment earmarked for insurance can be as high as 25 percent. That’s something we also see beyond traditional hurricane zones. For example, insurance already accounts for more than 15 percent of monthly mortgage payments in areas like Oklahoma City, Wichita and Tulsa and, every day, a growing number of potential trouble spots emerge.”
Photo: Jakub Żerdzicki