A new survey from Real Estate Witch found that homeowners spend an average of $17,958 a year on home-related expenses like maintenance, taxes, utilities and other fees, in addition to mortgage principal and interest payments.
Home prices aren't the only housing expense that's rising: The non-mortgage costs of owning and maintaining a home will take up a larger share of homeowners' budgets by 2024. The data comes from a February survey of 1,000 U.S. homeowners by real estate education platform Real Estate Witch.
Nearly 88% of homeowners surveyed said they expected costs approaching $10,000 per year but learned firsthand that the actual cost was closer to $18,000 per year.
An American nightmare?
Recent buyers are expressing regret amid soaring prices and staggering interest rates. About 68% of those who purchased after 2020 reported some degree of regret, compared to 54% of those who purchased before 2020. About 36% of homeowners surveyed said buying a home had a negative impact on their finances, and 23% said it had a negative impact on their mental health.
“Many new homeowners lack awareness of the myriad expenses that come with homeownership, unrealistic expectations regarding maintenance costs, and the allure of low initial mortgage rates that mask the long-term financial impacts,” explains Christopher Suranna, president of the Capital Area Association of Realtors.
“A narrow focus on short-term ability to buy a home often leads to overlooking the broader financial picture and underestimating the true costs of homeownership.”
Suranna advises homebuyers to avoid becoming “house poor” – spending so much money on housing that they have no money left over for retirement, emergency savings and other living expenses.
Being “house poor” has serious short- and long-term financial consequences. Nearly 69% of Real Estate Witch survey respondents reported taking risks or making personal sacrifices to afford rising housing costs. Nearly one-fifth of homeowners admitted to increasing debt to cover maintenance costs, renovations, taxes, insurance, and utilities.
In extreme cases, homeowners have considered selling their homes to pay off their debts. While this may be a short-term solution, it means the homeowner misses out on the long-term benefits of their real estate investment.
High maintenance and improvement costs
A large portion of the average homeowner's budget goes towards maintaining and improving their home: According to the survey, homeowners spend an average of $4,392 per year on maintenance and $3,784 on other home improvements.
Some home buyers agree to skip an inspection to appease the seller, but such concessions can ultimately cost the buyer: A home inspection can reveal costly and time-sensitive expenses, such as a crumbling foundation, a leaking roof or an aging HVAC system.
Expensive problems like flawed foundations, which cost an average of $2,000 to $8,000 to repair, go unnoticed because inspections are skipped. If the foundation shows signs of crumbling, shifting or settling, repair costs can be even higher, sometimes costing more than $20,000 to fix.
“Regular home inspections help identify potential issues early, allowing homeowners to address them before they turn into costly repairs,” explains Suranna. “Setting aside a portion of your monthly budget for maintenance and renovations gives you the financial cushion to better handle future expenses.”
Smart shopping, planning and budgeting can save homeowners a lot of costly headaches: The survey found that if they could do it over again, 21% of homeowners would buy a low-maintenance home.
Property Tax and Insurance Prices
Suranna said buyers also need to consider costs beyond just routine maintenance, encouraging them to factor regular expenses like property taxes, home insurance and utilities into their budgets. Surveys have shown that buyers are often surprised by how much they pay in property taxes.
“These annual costs, while predictable, can add up significantly over time and shouldn't be ignored in the excitement of buying a new home,” Suranna says.
According to a report by Real Estate Witch, the average homeowner pays $1,516 per year for home insurance and $2,904 in property taxes. New Jersey homeowners pay an average of $8,897 in property taxes, the highest of any state, followed by New Hampshire, Connecticut, and New York. These rates stand in stark contrast to Alabama homeowners, who pay about $718 per year in property taxes.
To avoid unpleasant surprises, prospective buyers should research the property tax history of any property they plan to purchase before making a purchase. As home prices and related costs continue to rise, buyers need to anticipate possible increases and budget accordingly.
The cost of keeping the lights on
Rising utility costs such as water, gas and electricity are contributing to record high home prices.
According to the survey, homeowners spend an average of $5,362 a year on utilities, 77% more than the estimated $3,000 for renters, and homeowners' utility bills have risen twice as much as renters' since 2020.
Calculating the potential costs can be a daunting task for potential homebuyers, and Matt Brannon, author of the Real Estate Witch report, says working with a trusted real estate agent can help.
A knowledgeable agent can estimate the average gas, electricity and water costs for a home, and these experts can also introduce buyers to homes that are more energy efficient and cost-effective.