According to a survey by NerdWallet, 75% of Americans (and 82% of millennials) consider owning a home to be a top priority. Additionally, Bank of America found 53% of first-time millennials equate homeownership with personal achievement, and 45% equate it with financial success. It’s no wonder, then, that 49% of this up-and-coming generation plan to buy a home in the next five years.
We’re all aware that a lot of financial finagling goes into buying a house. From down payments and closing costs to private mortgage insurance fees and a monthly mortgage, buying a home is a heavy commitment to place on your wallet. But these more infamous dues of purchasing a home are just scratching the surface when it comes to the financial costs that accompany homeownership.
We wanted to dig a bit deeper and explore some of the hidden costs of homeownership. Using data from the 2017 American Housing Survey (which includes responses from over 45,000 homeowners), we uncovered the six costs everyone would be wise to add to their monthly or yearly financial plans before purchasing a home. The American Housing Survey collects granular response data from the 15 most populous U.S. metropolitan areas, so we’ve lined up a comparison of how these fees stack up against one another and the national median.
Read on to discover these six hidden costs of homeownership in the United States.
The Costs No One Tells You About
From real estate taxes and homeowners insurance to homeowners association fees, the hidden costs of homeownership can really add up. Tack on the highly variable costs of utilities and commuting with the more ethereal idea of happiness and well-being, and there’s a lot to consider before choosing where to settle.
When looking at the median monthly costs, New York, Boston, and San Francisco took the top three spots for the most expensive metropolitan areas, costing nearly $1,000 more each month than the most affordable metropolitan areas. The costs here are dominated by property taxes and utilities, taking up a large proportion of the monthly budget. In contrast, Phoenix was the most affordable metropolitan area, with barely over $800 in monthly expenses. Also in the affordable realm, Atlanta and Detroit both came in under $900 for total expenses.
Let’s look deeper into how these costs break down to determine which costs affect homeowners in each metropolitan area the most.
Keeping the Lights (and Heat and Water) On
As you’ll see, utility costs vary greatly from city to city and state to state, which is why we’re counting this as the first hidden cost homeowners must prepare for, especially if the buyer is moving to an unfamiliar city. As you can see from our comparison of the 15 largest metropolitan areas, utility costs can quickly add up.
According to the homeowners who responded to the 2017 American Housing Survey, Boston packed the heftiest utility punch, claiming a median cost of $439 a month. Surprisingly, this made Boston $58 more expensive monthly than New York City, which held a median of $381.
The metropolitan area with the least expensive median utility cost was San Francisco, with a median cost of $246 per month. Interestingly, while having only marginal costs for most utilities compared to other areas, San Francisco had one of the highest monthly costs for water, second only to Seattle.
Electricity was, overall, the most expensive utility, and “other fuel” (which includes alternative forms of energy, such as solar and wind power) was the least expensive. This could suggest it is beneficial to look into alternative sources of energy for your home if you are looking to cut costs (although the upfront installation costs for these forms of energy can be quite high).
Over 351,000 HOA communities exist in the U.S., affecting the housing costs of more than 40 million American households. For potential homebuyers interested in making their homes in America’s largest cities, the concentration of neighborhoods governed by HOAs only increases. However, many of these cities have HOAs with median dues of less than $50 a month.
Paying Inevitable Property Taxes
Property taxes are considerable costs homeowners can’t opt out of. Whether a person owns a piece of land with a house or an apartment with a parking space, they’re going to be taxed for this little slice of the American dream.
Among the largest U.S. metropolitan areas, New York City was, again, the chart-topper. In a city where property taxes seem universally despised, and large rental properties have an effective tax rate five times greater than single-family homes, citizens can expect to pay a median of $600 per month. San Francisco, where property tax revenues are up 22% since 2016, held the second-highest property taxes with a median cost of $500 a month. Conversely, Phoenix (the capital of a state known for low property taxes) tied for the most affordable property taxes, along with Atlanta, costing homeowners a median of $150 a month.
Protecting Your Investment (for a Price)
Sixty-four percent of people who want to buy a home say its value as an investment is a primary motivator. Even for those who don’t plan to sell and think of their home as just a place to live, homeowners insurance is, nonetheless, crucial for protecting property in the event of an unforeseen event. In this category, storm-prone Miami took the top spot for expensive home insurance premiums (perhaps due, in part, to the many costly add-ons).
Interestingly, five of the top 15 largest metropolitan areas all claimed $67 a month as their median for home insurance: Atlanta, Chicago, Detroit, Los Angeles, and Philadelphia. All of these cities came in at slightly more than half the monthly cost of home insurance in Miami.
What Matters Most
The final cost we extracted from the American Housing Survey is one that can affect so much more than just the month-to-month budget. A person’s happiness plays a significant role in nearly every area of life. In fact, one of the most important and, perhaps, the most hidden cost related to homeownership is the emotional toll it can take to own, maintain, and ultimately be responsible for a home.
To find out where people were the happiest with their neighborhood, we decided to find the percentage of homeowners in the 15 largest metropolitan areas who rated their neighborhood satisfaction a 10/10.
Miami homeowners were the happiest of all with 35% reporting a 10/10 for neighborhood satisfaction.Interestingly, Seattle came in last with only 21% of homeowners giving their neighborhood a 10/10.
What’s truly surprising is that it seems the cost of living in an area doesn’t necessarily drive the homeowners’ satisfaction. Boston, which was in the top three for utilities, HOA dues, property taxes, and home insurance, still managed to take second place for the happiest homeowners. Meanwhile, sunny Los Angeles, which was at the bottom of the cost range for utilities, home insurance, and commuting, remained in the bottom three with only 24% of homeowners giving their neighborhood a 10/10.
Consider the Costs and Plan Ahead
Beyond the transparent costs that come with buying a home, there are significant dues that will cut into your monthly and yearly budget. We examined several of the most notable hidden costs homeowners should prepare for, focusing on which of the 15 largest metropolitan areas had the highest and lowest monthly costs.
While individual hidden costs varied greatly between large cities, it’s clear that buying in New York, California, or New England requires the biggest demand on a monthly budget. Phoenix, Atlanta, Detroit, and Texas, however, offer considerably more affordable monthly budgets for the young homebuyer.
If homebuyers are on the fence about where it’s best to buy a home or whether they can even afford one in the first place, these hidden costs could help potential homeowners prepare for the true scope of the costs associated with living in any major American city.
This research used data from the 2017 American Housing Survey, which was published on Jan. 24, 2019. According to the American Housing Survey, the top 15 metropolitan areas represent the largest metropolitan areas according to census population data. This sample is interviewed every two years until a new sample is selected. When it came to determining the percentage of homeowners rating their neighborhood satisfaction a 10/10, we utilized the information provided by the American Housing Survey under the topic of “Overall Opinion of Present Neighborhood.” We took the percentage of those homeowners in each city who gave their neighborhood a 10 out of 10 rating and determined that the highest percentage was the city with the happiest homeowners.
The study faces limitations in that these granular data are only collected for a handful of cities and getting a complete picture of more cities would have allowed us to give even more extensive advice to homebuyers.
Fair Use Statement
Know someone who’s looking to buy a house and want to fill them in on the hidden costs? Feel free to pass this along for noncommercial use, but just make sure you include a link back to the full study and credit to the authors.