Housing Prices Are Down, Why Is Home Insurance Not?

Many homeowner and prospective purchasers may wonder why insurance rates haven’t fallen on par with the declining value of home prices these last few years. Very simply put there is no direct correlation between the market value of a home and its insurance cost. The primary determining factor for insurance rates are the replacement costs that would be incurred to repair or rebuild the home. For most areas the replacement costs haven’t dropped too much as labor rates and material charges haven’t dipped substantially. It’s not uncommon now to find homes that would cost more to rebuild than they can be sold for currently. This shows the tremendous value out there in some markets.

Another factor that can keep insurance rates higher is that homeowners insurance usually has to cover the amount owed on the mortgage. This applies even if the mortgage is more than the home may currently be worth. Homeowners’ insurance premiums rose by approximately 62% between 2000 and 2007 as building prices escalated and mortgages increased. Average insurance rates did dip by 4% in 2008, but this is likely due to eliminating optional coverages and/or increasing the deductibles rather than a base reduction in coverage.

Keep an eye on your insurance rates and it’s always a good idea to review specified coverage and covered amounts on an annual basis to make sure it meets your current needs.

Stephen Woodall
REALTOR, GRI @ Long Realty Company

Stephen has made real estate his full-time career and passion since 2008, primarily specializing in the Foothills & the Northwest Tucson areas of Oro Valley and Marana. He is a multi-million dollar producer, representing both sellers & buyers. Stephen has tremendous experience in new home sales, listing & selling primary residences, listing & selling vacant land, listing & selling luxury homes, investment properties, rentals, and real estate development parcels.


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