The One Factor Making Real Estate More Expensive— and What To Do About It

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2:53That's the power of us. Equal housing lender. Member FDIC. Trademark 2025 U.S. Bank. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab.

3:16About a year ago, our production coordinator's mom, Mama Holmes, got the phone call that nobody ever wants. Her insurance agent was on the line letting her know that her premiums were going up. She asked the obvious question, which is, uh, why? Turns out her house had gone up in value and construction costs in her area went through the roof. When she shopped around for better deals, she found that every other company wanted even more money. So in the end, her current company was the best deal around. thanks to a little, and I do mean a little, discount for being such a loyal customer. It might not sound like it, but this is actually a win from my perspective.

3:50She kept her coverage, and let's be real, it doesn't always end this way for everyone. This is the kind of situation that is getting more and more common. Let's follow the numbers trail here because there are new factors that are permanently making real estate more expensive, and not just for wannabe homebuyers, but also for current homeowners. First, prices are up 47 % from 2020. Just an aside here, I'm using the national average. Your local market might be a totally different story. And if it is, I hope it's working in your favor. But it could be more expensive where you are. But home prices aren't the only costs going up.

4:22It's easy to see inflation right in front of our faces at the pump or in the grocery store. But inflation is everywhere. It's seeped into the construction industry as well, which has a trickle-down effect on home prices. Construction prices have inflated around 20 % since 2020. Materials and equipment are more expensive. And labor is in short supply. So the cost of building a new home, replacing one or repairing one has gone up significantly. And we're not done here because there's another factor that can't be curbed by the Fed or interest rates, and that is weather-related disasters. So we have more expensive homes and in areas where insurance companies are already biting their nails.

5:00Add a massive increase in the number of climate-related disasters from wildfires to hurricanes and insurance companies are in serious trouble. The result is homeowners insurance is up 33 % since 2020, and that number does not account for any of the claims made as a result of the most recent round of storms like Helene or Milton. This is causing two big problems. First, homebuyers are realizing that their dream home comes with an extra hefty price tag thanks to insurance. So if you're obsessed with real estate porn like I am, that insurance Zestimate on Zillow is not necessarily accurate. and what insurance options you'll actually have will impact how much you pay for your mortgage and whether or not you get a mortgage at all.

5:40And second, homeowners are getting the shock of their lives when their premiums skyrocket or their coverage is suddenly canceled, even after paying their premiums for years. The first problem is easier to fix, sort of. When you're house hunting, make sure to check on insurance rates for the area. Look at flood maps and ask sellers if the place has ever been flooded. If it has, dig deeper. Because I'll tell you this, dealing with a flood is a gross, expensive nightmare, and nobody wants to buy a house that floods every single time it rains. Many sellers are not legally required to disclose past flood events, which will impact whether this property could be a good investment for you or just a money pit.

6:18But people are usually pretty honest when you ask them directly. Don't have your agents ask theirs. If possible, ask the seller face to face. If you've been around here long enough, you know I'm generally team renting. I know people love to say renting is throwing money away or owning your home builds you wealth. But what if that home is underwater, literally or financially, in a decade? Suddenly, owning doesn't look so smart. Increasingly, the 1 % are coming around to this way of thinking. For households making$750 ,000 or more, over 10 % are now renting. Renting in this group is at the highest level on record.

6:54Households at the tippy top of the net worth chart are also renting at record levels with 3.7 % of those in the top 5 % renting. The math around owning a home no longer looks quite the same in an era where once in a century storms are happening every single year. But if you're already a homeowner and you can't swing the rising insurance costs, what the heck do you do? Well, one option is to raise your deductible. That's the amount that you pay before your insurance kicks in. Insurance premiums are often governed by state laws. Some states aggressively control how much insurance companies can charge.

7:26That's great for residents of those states. But if you're in a state without those protections, you might be footing the bill for everyone else. Of course, this would mean if you did have a problem with your house or you needed support from your insurance provider, you would be paying more out of pocket. So you definitely need to think about your particular area and weigh the risks and rewards. If you're in a high-risk area and raising your deductible just isn't an option, think about reinforcing your home against natural disasters. Adding storm shutters or upgrading to a more fire-resistant roof can make your home more resilient and also save you money on premiums.

7:57If you've recently made any improvements like this, please don't forget to let your insurance company know you could possibly earn a discount. Even updates to wiring and plumbing can lower your premiums. It can also help to remove liabilities on your property. I know it's no fun, but removing a trampoline or a pool could reduce your premiums as well. If you're in a situation where you're facing a premium hike that you just can't handle, it might be worth looking into. Now, what happens if you lose your home insurance? This is a huge problem if you have a mortgage. One thing to do is look into FAIR plans offered by 26 states.

8:30These plans offer minimum coverage, but they also help you keep your mortgage in the event that your private insurance company drops you. They also offer you a little protection if a disaster strikes. These are insurers of last resort. Both California and Florida are on the lists of states which offer this type of coverage. And if you don't have a mortgage, you can technically go without insurance. I talked about this with my friend Scott Galloway, who's about to make his second appearance on the pod.

8:58Insurance, in sum, is regulatory capture, which is my way of saying it's a total ripoff if you can afford not to have it. I own 30 properties in Florida. I don't have insurance on any of them. Yep, Scott doesn't have any insurance of any kind on any of his properties because he can afford to self-insure. Not exactly my situation, probably not yours. Scott will explain this perspective more in an episode of Money Rehab coming out next week. But in the meantime, know that if you lose your coverage, you can create your own insurance fund. Set aside what you'd normally pay in premiums in a high-interest savings account.

9:34Another option is to make sure you have your retirement savings on lock. Because during natural disasters, the IRS often lets you tap into up to$22 ,000 in retirement funds for home repairs without penalty. Listen, I am an L.A. girly. I didn't come here from some random small town with stars in my eyes. I was born here. I remember the Northridge quake. I have smelled many wildfires in my life. I get wanting to live in a place that makes sense for you, even if it's risky. No judgment here. But I just want us to be realistic because sometimes where you live boosts the risk that your home can become more of a financial burden than a financial asset.

10:09I would love for my daughter to grow up a California girl too, but I've got my emergency fund and a go bag. And you should too. For today's tip, you can take straight to the bank. Renters, this insurance conversation applies to you too. Unless you're like Prof G and can afford to replace everything in your house and live in a hotel if disaster strikes, please get Renters Insurance. It will cover your stuff if there's a fire or your water heater decides to burst. But a heads up, it does not cover flood damage from rivers or oceans. For that, you need separate flood insurance from the National Flood Insurance Program.

10:44Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at moneynews and TikTok at moneynewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.

11:26Thank you.