The Potential Downsides of Your Home’s Increase in Value – The Oakland Press
Archive photo. (Stephen Frye. MediaNewsGroup)
Most homeowners have seen their home values increase significantly in recent years. Some who had considered new construction are rethinking their plans because the cost of labor and building materials has also skyrocketed. And all of this is happening in an environment of severe housing shortages and mortgage rates that have doubled in the last year.
Many are glad they were able to move into their homes a few years ago when mortgage rates were below 4 percent. Tied to low mortgage rates, many households are hesitant to move.
That might mean turning down a job offer in another city or, in the case of a growing family, figuring out how to stay in your current home. In other words, higher mortgage rates and rising property values have brought mobility to a halt.
So we have a real estate market with a serious shortage of supply, rising interest rates and higher prices. But that’s not all. The cost of insuring a home has also skyrocketed.
In states like Florida and California, some insurance companies don’t even issue accident insurance anymore. And in states where there are several insurance companies that still do, the costs are enormous.
That’s why I believe that in this environment, it’s important for all homeowners to take a close look at their current home insurance. As mentioned, home prices have skyrocketed and many are patting themselves on the back for this increase in value. But they all need to be aware of two things.
First, make sure your insurance coverage keeps up with developments. Let’s say you paid $500,000 for your home and the market value in your neighborhood is $750,000. Does your policy reflect the market value? If your home is only insured for $500,000, you have a problem.
There is a second and equally important point that you must consider to ensure that your home is adequately insured. This situation is especially prevalent in more upscale neighborhoods. It is the discrepancy between the market value of a home and the actual replacement cost of that home. For example, if a home is made of imported materials or unique craftsmanship, this must be included in your insurance coverage.
The fact is that your home insurance bill should increase to ensure proper coverage. If in doubt, you should consult your accident insurance agent. If there are any discrepancies, request an estimate.
During these conversations, you should go over the basics of your policy. A key part of any policy is the language of what is and isn’t covered. Cheaper doesn’t mean better. I’m not saying you shouldn’t ask how you can keep premiums low. You should. It can be as simple as increasing the deductible.
I suspect that many families will stay in their homes longer than originally planned. Whether it’s the cost of moving or the decision to remodel or build an extension, there are many good reasons to stay at home. I think developments in the housing market will mean that we are less mobile.
You may be happy with the value of your home and the terms of your mortgage, but for others, higher values and higher mortgage rates have dampened their home search.
Review your insurance coverage and make sure your policy is sufficient in the event of a catastrophic event.
Email your questions to [email protected]
Securities are offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services are offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Society for Lifetime Planning is not affiliated with Kestra IS or Kestra AS. https://kestrafinancial.com/disclosures
The opinions expressed in this commentary are those of the author and do not necessarily reflect those of Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to be specific investment advice or recommendations for any individual. It is recommended that you consult your financial professional, attorney or tax advisor regarding your individual situation. Comments regarding past performance are not forward-looking and should not be considered an indication of future results.
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