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An article in today’s Wall Street Journal illustrates a problem I never considered.
Many retirees who paid off their mortgage as part of retirement planning are now finding that increases in property taxes and home property insurance are so significant those payments now exceed the former mortgage payment thus putting some retirees in a financial bind.
It seems applying a standard inflation factor to future costs for those items may not be accurate.
Wow, I guess this is one time I feel lucky to live in California–tax-wise, I mean; I feel lucky for other reasons!. Property tax increases are limited by a series of statutes going back to 1978. And as an over-55 homeowner, if we sell our home and buy another, we get to use the previous home’s property tax basis. This was a big benefit when we sold our home in 2019–we’d bought it in 1998 before prices went out of control, so the statutory caps on property tax increases really helped us, and I was able to file a form and get that basis transferred to our new home. If we move again, we’ll get the basis transferred again.
Anyway, our monthly bill for property taxes ($635) and homeowner’s insurance ($111) for our condo is a bit under $750, which is about one-third of what our mortgage payment is. Now the HOA fees (which have now climbed past $700/month for two HOAs) are a different story. But the condo HOA pays the insurance for the buildings, and we just pay “walls-in” insurance.
IN FLA many of us are underinsured as the rates are through the roof and from times terminated and move to another company. The values of our homes will definitely go down but no state income tax and utility rates are quite reasonable. Many will decide not to retire to Florida
I just moved to Fl and my insurance rates are lower than when I lived in Virginia. Perhaps because my FL home is new?
Darn, we’re considering the reverse of that move and were looking forward to a break on insurance. We’re close to the coast; are you?
When I do the simplified math :
Property Tax + Property Insurance or
Property Tax + Property Insurance +
a Mortgage Payment. I’m thankful we chose the first choice over the second one going into retirement
Unfortunately, those in coastal area with catastrophe risk are not going to find renting to be better over the long term than owning. The entity which owns the house you want to rent is paying the same insurance and tax amounts that you would pay if you owned the home. The same is true for those who rent apartments. The process of insuring is the pooling or sharing of losses. Your rates go up and down based on the results of your pool or group. The only way to avoid these costs is to be in a different location which doesn’t have the same exposures.
While it is true that our property taxes have gone up in the 45 years that we have lived in this house that we paid off 30 years ago. The tax amount is still less than 1% of the market value. So, the tax rate hasn’t really changed over all these years. The property value is ten times higher….much more than inflation. If you like living in a free market economy you have to be willing to put up with how it operates, both the benefits and the costs.
What has changed across the country, is that many areas where home values were stable and didn’t inflate have seen housing cost inflation since the Covid era interest rate reductions and the virtual shutdown in home construction. Despite this, these areas are still dramatically less expensive than high cost areas such as CA, Austin, Seattle, and the like. So, if you can’t afford to pay the tax you need to relocate. It is just the way things are……
Regarding insurance, it’s a shame that everyone has to pay more for weather events particularly, but not exclusively, on the coasts. I understand the concept of insurance to spread risk and costs, but I can’t believe that coastal homeowners are paying rates, even today after large rate increases, that are commensurate with the risk of loss.
The risk and cost goes beyond insurance. At the Jersey shore homeowners in some areas are required to raise their homes 10 feet off the ground much like Malibu as I call. A few years ago a hurricane hit Cape Cod and I watched several house just fall into the sea. One I know didn’t have insurance.
God bless and Merry Christmas to those who celebrate. Happy Hanukkah too. 😊🕎🎄
Dick, I believe this will become an impediment for younger generations considering a home purchase- especially in areas more prone to impacts from climate change. It may be cheaper in the long run to be a lifelong renter in many housing markets, given the high cost of housing, and the layering of tax and insurance costs. It doesn’t make sense to own, when renting is significantly cheaper, and mobility is also much easier should a job opportunity present itself in an area with a better commute, or in a different state.
i live in a coastal area (not directly on the coast), and have seen insurance rates increase 8 fold over 20 years, while taxes have only increased 4 fold. I suspect the multi-million homes directly on the coast (which are seeing huge insurance spikes), will eventually be devalued in coming decades due to the enormous cost of insuring them, along with the impacts from coastal storms. I’ve already seen this start to play out in some areas more prone to erosion.
If housing is unaffordable because of high property taxes, or high insurance rates, or high home prices, the free market will work its magic and real-estate prices will stagnate or fall. That may be bad news for those of us who own homes, but it’ll be good news for the younger generation that currently feels they have no financial choice but to rent.
This is part of how we got here. Home prices were largely stagnant for a century leading up to WW2. Some of it was availability of land but there’s no doubt that all the programs that made buying homes really advantageous, changed the ratio of owners/renters dramatically.
If the govt steers clear of the market, allows development to meet demands, pretty sure we’ll see the market stabilize again, with a larger number of renters.
Jonathan, your comment is generally correct when looking at high home prices (in relation to locational incomes). When the percentage of taxes and insurance of an overall mortgage payment starts to rise over 25% of a mortgage payment, I believe that it will give potential home buyers pause to buying- especially if homeowners insurance rates are increasing at rates that are far outstripping inflation, and not knowing what the future of the market for insurance will be (like in many areas of FL). In recent decades, high real estate taxes were in some markets dampening home affordability, and now with runaway homeowners insurance in some markets, this may prove to add to the challenge of homeownership. I don’t think the real estate market has historically seen markets where taxes and insurance have represented more that 15-20% of overall mortgage payments in widespread areas.
I hope you are right, but in our area renting is out of control. The rent for a one bedroom, one bath apartment in our area in a nice rental complex runs $4,000 to $5,000 a month.
When we bought the Cape house in 1987 for $159,000 the value dropped so we were underwater for ten years, since then it has been steadily upward.
I couldn’t afford to buy my own house for its current value.
No wonder people are moving south. Checking Zillow, looks like one bed one bath apartments in relatively new complexes are going for $1,500 to $1,600 where I live, although you could go as high as $2,000 for a brand new complex in the heart of downtown. Of course, property taxes are much lower…
Have faith in the free market: If rents are out of control, folks will look for alternatives, including buying and moving elsewhere. If a situation can’t last forever, it won’t.
Agree.
Unfortunately, our government seems to always get involved in order to “fix” the “problem.”
It never fixes the problem, only delays equilibrium.
What is it they say, location, location, location. People who pay these rents frequently work in NYC. They can walk to a bus and be in mid town in 35 minutes or so and the apartments sit on the edge of a 300 acre reservation.
You’re right though, some of the tax breaks NJ offers are labeled as Stay New Jersey and aimed at seniors.
Isn’t this happening more in states with no state taxes and which are disproportionately affected by climate change?
We are talking property taxes. Is there a state without property taxes?
Maybe seniors having difficulty with property taxes should sell their appreciated house and move to a location with tax exemptions for seniors.
“Many states give property tax deductions to seniors over 65, and 12 states provide complete exemptions: Alabama, Alaska, Florida, Georgia, Hawaii, Mississippi, New Hampshire, New York, South Carolina, South Dakota, Texas and Washington.” (From this.)
Apparently veterans can also qualify for exemptions. And if your insurance rates are going up significantly maybe it’s time to move to a safer area. Do you really want to cope with floods or hurricanes or forest fires as you age?
I apologize – it seems my source was wrong. However, I believe it is true that some states offer some relief to seniors and veterans. My state is not one of them.
As Seniors here in Georgia , we have an exemption from school taxes. Honestly I think it’s counterproductive.
Correct! We all benefit from an educated populace. And if you have raised children and are now elderly your children benefited from others helping to pay to educate them.
Georgia is ranked 30th in its educational system. No free lunch.
NH senior exemptions vary, and are on a town by town basis. Most are only a partial exemption. I have not heard of any town with a blanket exemption of all property taxes.
We don’t have full exemptions in Florida either, there is an additional $25k in a senior exemption that might have been worth something 25 years ago, Today, with sky rocketing tax bills, it’s not worth a biscuit.
I’m a resident of South Carolina and over 65. I can assure you that South Carolina does not give a COMPLETE property tax exemption, although it is generous.
Same here in TX. We are over 65 and pay more than 10K/year for 700K home.
I don’t want to move from where my family has been since the 1840s either.
NJ has property tax freezes, rebates and $250 a year off for veterans. A bill is supposed to go into effect in 2026 that’s cuts property taxes in half up to $6,500 for anyone 65 and over, not even income based. Very irresponsible.
‘’The problem with all that is it’s unfair to the rest of the population who must pick up the difference making housing that much more unaffordable. None of those tax breaks should based only or mostly on age. The tax freeze can occur with incomes up to nearly $200,000.
You’re correct (Fellow New Jerseyan) a big part of home value is the school district, if you want to benefit from the better schools, you ought to bear the weight of those costs.
If they do it correctly the state would shift those taxes to the income tax such that it is less arbitrary in the cost shifting (it’ll fall on higher incomes more than the rest). If they just pump it into other’s RE tax, it’s a dog chasing it’s tail.
Many people don’t realize that half or more of their property taxes go to their schools and at least half of those taxes go to teacher pay and benefits.
Look at the lowest taxed states and then look up where their school systems rank.
Couple of points. First, you can afford your property taxes, not everyone can.
Second, if your ancestors had felt that way you wouldn’t be living in the US. Americans used to be known for moving around. (1840 is practically yesterday to a European…)
OK, I’m finally going to say it. Please STOP the personal attacks on Mr.Quinn!
That’s not an attack. That is a statement of fact. If he doesn’t like his property taxes, which he has complained about multiple times, there is a solution.
You’re right, not everyone can, but that is not limited to seniors. That’s why I think it unfair to raise costs for younger families by subsidizing seniors especially when subsidies not strictly income based. Someone earn $180,000 or more even in NJ
Why should my taxes be cut in half just because I am over age 65?
Maybe because you are using fewer services? (Although I do think everyone should support public schools.)
The article sorta ignores some of the math (places like Syracuse and Rochester have low home prices so the percent is driven up by that). BUT it certainly makes sense in Miami and New Orleans where they’ve been experiencing homeowners insurance spikes.
I suspect the homeowners is a double whammy, the dollars being insured are inflating and the cost of those dollars are inflating.
I appreciate that home insurance and property taxes are both up sharply. I just don’t know why we’d link this to paying off a mortgage. Presumably, these retired homeowners would be in an even bigger bind if they hadn’t paid off their home loan.
That’s true, but I think the point was not having a mortgage was part of the plan, but the unexpected/unplanned others increases offset the expense savings.
If anyone thinks their property taxes and insurance costs won’t increase on an annual basis, I fear they may be a bit naive…
The point of the article is that increases in property taxes and insurance are much greater than they have been in the past. The article has a link to a July 11, 2024 WSJ article that says property insurance premiums have increased an average of 20% nationally in the past year.
Home Insurance Premiums Are Surging—and States Are Allowing It Industry denies ‘bullying’ tactics after getting approval for premium increases averaging 20% since last year
https://www.wsj.com/finance/regulation/home-insurance-premiums-surge-states-approve-8656877d?mod=article_inline
Dick, Ii read the same article. This is totally true of our beach home. Luckily it is in a good area so flood insurance hasn’t been too bad, but we have friends whose floods insurance is 10 times ours.
My homeowners insurance on the Cape keeps going up too. Now they give us a choice, take the full premium increase or raise the deductible for a hurricane event. Ours is up to $35,000 deductible. On the other hand, the property taxes are only $2,700 a year. 35 years ago they were $700 a year.
NH where we live is a high property tax state. One significant factor when we were deciding where to build our retirement house was the property tax rate in each town.
I emphasized to my wife that it is better to pay more for a house in a low property tax town than vice versa, as the house will potentially increase in value whereas every dollar you pay the tax “person” is gone forever.
The town in which we raised our children has one of the top 5 highest tax rates. In 2016 we sold the house for 260K and we’re paying 9K.
We built a 325K house in a low tax town near the seacoast and our taxes were reduced to 6K.
Our current property taxes are 8K and our old house is 13K.
Overall we have saved tens of thousands of dollars.