Unemployment rates have hit record highs. Businesses are closing from coast to coast. But, there’s one aspect of 2020 we can, dare I say, be grateful for: the housing market.
Mortgage interest rates have quite literally never been lower. In nearly 50 years worth of records from Freddie Mac, rates have never fallen below the 3% mark — until 2020. In response, homeowners and buyers are clamoring for a good deal, be it through refinancing their current mortgage or purchasing their first home. Even during the fall and winter months, when sales are typically low, the housing market has been bustling with activity.
However, in their rush to capitalize on great rates, consumers may overlook other important financial factors to consider when refinancing or buying a new home. Interest is down and sales are up, but there are plenty of details a homeowner or buyer should evaluate before participating in 2020’s housing phenomenon — among them is homeowners insurance.
Interest rates free-fall
According to Freddie Mac’s Primary Mortgage Market Survey, interest rates for the 30-year fixed-rate mortgage have fallen every single month this year. But, rates aren’t just low; they’re the lowest they’ve ever been.
For context, the average rate for a 30-year fixed mortgage, spanning records from 1971 to the present day, is roughly 8%. In November of 2016, rates sunk to an all-time low, down to 3.31% — but four years later, 2020 has it beat.
The year began with an already impressive rate: 3.72%. Then, the coronavirus hit American shores, altering everything we once considered “normal” — including interest rates. Fast forward to November 25, 2020; the average rate for a 30-year fixed mortgage has fallen an entire percentage point to 2.72%.
Rates for 15-year loans have been equally impressive, diving from 3.16% in January to 2.26% in December; and as economic experts look ahead to 2021, they expect little to change.
Home sales surge
Interest rates are certainly breaking records in 2020, but they’re not the only ones.
Low interest rates have paved the way for homeowners hoping to downsize their monthly payments as well as first-time buyers looking to snag a good deal. Home sales rose to a seasonally adjusted annual rate of 6 million units in August of 2020 — the highest since December 2006. But, that’s not all.
Fall and winter are historically dull seasons for home sales, but, of course, not so in 2020. According to the National Association of Realtors® (NAR), existing-home sales grew for the fifth consecutive month in October. Compared with the month prior, sales were up 4.3% to 6.85 million units; but, compared to the same time in 2019, sales had increased by 26.6%.
“Faced with many uncertainties in 2020, the real estate industry has been able to meet surprisingly strong homebuying demand and help lead our country’s economic recovery,” said NAR President Charlie Oppler.
Home prices spike
Thanks to exceptional interest rates, the housing market has been wildly active in 2020, soliciting the attention and action of sellers and buyers all over the country — but there’s only so much to go around.
The last time America saw such a dramatic increase in home sales was 2006. At that time, however, the number of available properties was more than twice what they are today. As demand for housing climbs, supply dwindles; and when inventory dives, prices rise.
In their 2020 Q3 House Price Index Report, the Federal Housing Finance Agency (FHFA) reported a 7.8% increase in U.S. house prices from the third quarter of 2019 to the third quarter of 2020. According to Dr. Lynn Fisher, Deputy Director of the Division of Research and Statistics at FHFA, this swell in home prices marked the
“strongest quarterly gain in the history of the FHFA HPI purchase-only series.”
These higher prices impact a number of crucial costs involved in a home sale, including your monthly payment, down payment, and property taxes. Consequently, while homeowners and buyers alike have scrambled to gain an attractive, new rate, at the end of the day the deal may not be as sweet as they suspect.
“While homebuyer appetite remains robust, the scarce inventory has effectively put a limit on how much higher sales can increase,” said Sam Khater, Freddie Mac‘s chief economist. “Unfortunately, the record low supply combined with strong demand means home prices are rapidly escalating and eroding the benefits of the low mortgage rate environment.”
Does market value impact homeowners insurance costs?
As home prices in 2020 continue to skyrocket, you may be wondering, “How does this impact my homeowners insurance?”
Homeowners insurance protects your home — as in your physical dwelling, your personal property, and other assets — from damages and theft. Once you’ve determined what specifically you want to be covered, insurance companies take a number of factors into consideration to determine your monthly premium, including your replacement cost estimate. This number, typically supplied by a certified appraiser, is the cost to rebuild your home from the ground up.
Fortunately, the replacement cost estimate is not the same as the current market value of your home. Instead, this number is based on construction costs and the price of building materials. Consequently, while your home may be rising in value, it should not impact your insurance.
Nevertheless, whether you’re refinancing your mortgage or buying your first home, now is a great time to evaluate your homeowners insurance policy and consider alternatives to save money. Take a look at the tips below on ways to lower your insurance premium and compare quotes from top providers, so you can get the best policy for the best price!
How to lower your homeowners insurance premium
One of the best ways to lower coverage costs is by bundling. A lot of insurance providers offer much more than coverage for your home, and if you buy more than one form of insurance from the same provider — if you “bundle” — you can receive a sizable discount. For instance, Policygenius customers who bundle their home and auto insurance policies save an average of 30%!
Lower your deductible
Another factor to consider is your deductible. In short, higher deductibles = lower premiums. So, if you want to pay less per month for coverage, you can opt for a higher deductible. Just be prepared to pay a lot more out of pocket when you submit a claim!
Understand how much coverage you need
The amount of coverage you want will also increase or decrease your monthly premium. Start with a standard homeowners insurance policy — which includes dwelling insurance, liability coverage, and personal property coverage — and build up from there if you’d like additional coverage for rare collectibles, family heirlooms, etc.
Look into discounts
Depending on the insurance company you select, you may qualify for a number of discounts. For instance, installing a monitored home security system can knock up to 20% off your homeowners insurance, according to SafeWise. As you sift through quotes, be sure to ask insurers for a comprehensive list of their available discounts to make sure you’re getting the best deal!
How to find an affordable homeowners insurance policy
To receive a home loan, most lenders require some form of homeowners insurance. In fact, according to the Insurance Information Institute, among the 63.9% of owner-occupied homes in the United States, 95% have homeowners insurance.
If you’re preparing to purchase a new house or refinance your current home, use an independent resource like Policygenius to compare providers and quotes. Once you’ve answered a few basic questions about your home and finances, Policygenius presents you with a list of top providers and personalized quotes — all in a matter of minutes!
Young Alfred is another great place to compare quotes, especially if you want to find the best deal fast. Young Alfred works with more than 40 different insurance providers and acts a bit like a personal assistant through the whole process…but one who works for free.
You might know them for their auto insurance commercials, but Allstate is also an established provider of homeowners insurance. Allstate has been around for nearly a century, and it’s easy to see why. For one, they have deals and discounts up the wazoo, and their local agents are quick to mention them!
Finally, if you want to work with an insurance company with a “big heart,” check out Lemonade. Unlike your average insurer, Lemonade’s pay structure is out for the world to see; a flat 20% fee of your premium pays for operating costs, salaries, and so on, and the rest goes to the insured. But, here’s the kicker: with Lemonade, you receive the money you need, and what’s left is donated to causes you care about.
If you’re one of the millions of Americans vying for a record-low rate, by refinancing or buying a home, reassessing your homeowners insurance may also help you maximize savings!
While homeowners insurance premiums shouldn’t be affected by today’s extraordinary market values, now is a great time to ask about policy discounts and consider alternative providers.
The insurance industry is a competitive place, and there are great deals to be had for those who want them. Take some time this year to compare homeowners insurance quotes and be sure to ask providers about their available discounts!
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