Increasingly Debt-Strapped Consumers Concerned About Rising Housing-Related Costs

When analyzing housing affordability, economists and industry observers closely track changes in top-line measures like home prices, rents, and mortgage rates. However, there are many other housing-related costs that, individually and in aggregate, meaningfully impact affordability for both homeowners and renters, including real estate taxes, insurance, utilities, routine maintenance, and homeowners' association (HOA)/condo fees, among others.

In 2022, Fannie Mae published a study showing that non-mortgage-related housing costs comprise roughly half of the total cost of homeownership for mortgage borrowers. For outright owners (i.e., homeowners without a mortgage loan), these additional costs typically account for the bulk of their housing budget. In fact, from Q4 2022 to Q4 2023, housing-plus-utilities expenses increased at more than double the rate of overall inflation, as measured by the Personal Consumption Expenditures (PCE) Index¹. Added to other rising household expenses, such as food and transportation, the increase in housing-related costs is stretching budgets and likely contributing to rising consumer debt levels.²

To better understand these cost challenges, we leveraged our National Housing Survey (NHS) in Q4 2023 to ask consumers whether they'd experienced a noticeable increase in housing-related costs in the past year, how concerned they are about these costs, and if they planned to take action to reduce costs. To gain a more holistic sense of their financial situations, we also asked consumers questions about their non-housing finances, including debt levels and their perceived financial resilience.

Among the key findings:

Note: Percentages are based on a nationally representative sample of 3,099 consumers in Q4 2023, unless otherwise noted.

• The cost of utilities was the top housing cost that increased for homeowners (67%) and renters (58%) and is a top concern for both.  Homeowners insurance and real estate taxes were the second and third highest-ranking costs, increasing for 57% and 56% of homeowners, respectively. For renters, "other” monthly fees (e.g., amenity fees, trash fees) and routine maintenance fees ranked second and third as costs that increased for the largest percentage of renters, at 39% and 34%, respectively.
• Lower-income homeowners³ expressed significantly more concern about their ability to pay for all housing-related costs compared to higher-income homeowners. 
• Given rising housing costs, many consumers said they may act to lower those costs: 73% of consumers said they were "very” or "somewhat” likely to pay more attention to their finances; 50% said they are likely to cut back on utility usage; and, among homeowners, 30% said they would likely apply for a property tax exemption, if eligible, while 25% said they would likely look to obtain a new homeowners' insurance policy.
• Consumers are experiencing elevated levels of debt stress (38%) compared to previous years, and credit card debt has risen significantly as a primary debt concern in Q4 2023 compared to just one year ago in Q4 2022 (37% vs. 25%, respectively).

Utilities are a top concern for both homeowners and renters

Many may be surprised to learn that utilities edged out homeowner's insurance and real estate taxes as the cost that increased for the greatest share of consumers. Sixty-seven percent of homeowners and 58% of renters reported that the cost of utilities (e.g., electricity, gas, water, sewage) increased over the past year. Additionally, 33% of homeowners and 51% of renters expressed concern about their ability to pay for utilities. For homeowners, utilities and routine maintenance tied as a top concern, while renters cited utilities as their top concern.

These results are consistent with utility price data over the previous decade. Electricity costs, for example, increased 2% or less annually from 2015 to 2020 (according to Consumer Price Index (CPI) data). However, over the two-year period from 2021 to 2023, average electricity costs jumped 18%.⁴ And because utility bills are typically charged monthly, these increases were likely noticeable more immediately to consumers than other costs, such as insurance or real estate tax increases, which are often rolled into escrow for mortgage borrowers and paid semi-annually or annually.

Other rising housing costs are also of concern, particularly for lower-income homeowners

Among homeowners who reported having these particular housing-related costs, over half said their homeowners insurance and real estate taxes increased "moderately” or "significantly” over the past year. Slightly less than half indicated rising costs associated with personal property taxes, routine maintenance, homeowners' association/condo fees, and flood insurance. Notably, more outright owners than mortgage borrowers reported increases in their homeowner's insurance, real estate taxes, and flood insurance costs. Of course, outright owners likely have heightened awareness of many of these expenses because they typically pay them directly, rather than having them rolled into escrow/monthly mortgage payments.

Unsurprisingly, housing-related costs are affecting lower-income homeowners much more than higher-income homeowners. Nearly 50% of lower-income homeowners expressed concern about their ability to pay for each housing-related expense, particularly utilities, routine maintenance, and real estate taxes, compared to 25% or less of higher-income homeowners, a significant difference.

The survey also revealed some regional variation in consumers' cost concerns. For instance, respondents in the Midwest were slightly more concerned about paying for real estate taxes compared to other regions, while respondents in the South indicated more concern about flood insurance. There could be many local and regional issues affecting these results, from local or state policies restricting the increase in real estate-assessed values and taxes (as seen in California), to the incidence of flood insurance skewing much higher in the South, in accordance with Federal Emergency Management Association (FEMA) policies.⁵

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A surprisingly large number of consumers said they may act to lower costs

According to our survey, 73% of consumers said they were "somewhat" or "very" likely to pay more attention to their finances, and 50% said they are likely to cut back on utility usage. Renters expressed even more interest in cutting back on utility usage, at 55%.  When it comes to taxes and insurance, 30% of homeowners said they would likely apply for a property tax exemption, if eligible, and 25% said they would likely look to obtain a new, hopefully more affordable insurance policy. Additionally, 29% of renters said they may reduce or cancel their rental insurance policy.

Considering the time and effort necessary to apply for an exemption or shop for lower cost insurance coverage, the fact that so many homeowners and renters would consider pursuing these options demonstrates the degree to which these costs may be affecting consumers' budgets.

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Concern about making debt payments has crept upward

We also asked consumers about their debt stress, as we have many times before. Most recently, 38% of consumers said they are "somewhat" or "very" stressed about their ability to make payments on their debt – the highest percentage since the question was asked in the 2010-2015 time period following the Great Financial Crisis, and higher than when we asked more recently in 2020 and 2022.⁶ At 53%, renters expressed the highest level of debt stress, compared to 34% of mortgage borrowers and 22% of outright owners.

Renters and outright owners cited unpaid credit card debt as their largest source of financial stress, while mortgage borrowers pointed to their mortgage, followed not far behind by credit card debt.  This aligns with a recent report from the NY Federal Reserve indicating that credit card debt had risen to a 20-year high.⁷

Additionally, only 36% of renters said they have enough savings to handle an unexpected expense, compared to 64% of homeowners. This data point, in particular, helps demonstrate that the ongoing economic pressures associated with elevated inflation and higher costs are disproportionately impacting households with fewer assets and lower incomes.

Conclusions and Implications

While many homeowners have been shielded from the rising mortgage rate environment after locking in historically low mortgage rates – or perhaps by owning their homes outright – most have not been able to avoid the substantial cost increases to utilities, real estate taxes, home insurance, and routine maintenance, as shown in this research. Renters, in turn, have been hit with not only large rent increases post-pandemic, but also cost increases for utilities, "other" monthly fees, and renter's insurance. Unsurprisingly, lower-income homeowners and renters expressed the most concern about being able to cover these housing-related cost increases.

A potential silver lining of the higher housing cost environment may be that consumers appear to be paying more attention to their finances and household budgeting, as 73% of respondents indicated in our research, including looking for ways to reduce costs.

However, when financial situations become overly stressed, households are sometimes forced to take riskier approaches to expense reduction, including delaying or reducing expenditures for routine maintenance, taxes, or home/rental insurance. These choices could ultimately decrease the value of their homes and put households at greater risk if something unexpected or catastrophic were to occur. As an industry, it's important that we understand the totality of the cost burdens facing consumers, so that we can continue to raise awareness, where necessary, and identify the practices and policies best suited to help alleviate the associated risks.

To learn more, read the full research deck.

Opinions, analyses, estimates, forecasts, beliefs, and other views of Fannie Mae's Economic & Strategic Research (ESR) Group or survey respondents included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR Group bases its opinions, analyses, estimates, forecasts, beliefs, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, beliefs, and other views published by the ESR Group represent the views of that group or survey respondents as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.

¹ U.S. Bureau of Economic Analysis (BEA), Personal Consumption Expenditures, Table Link

² NY Federal Reserve, $1.13 trillion in outstanding credit card debt in Q4 2023 Household Debt and Credit Report - FEDERAL RESERVE BANK of NEW YORK (newyorkfed.org)

³ AMI is "Area Median Income”; Lower Income defined as Income < 80% AMI, Higher Income defined as Income > 120% AMI

⁴ Bureau of Labor Statistics, CPI, not seasonally adjusted

⁵ https://nfipservices.floodsmart.gov/reports-flood-insurance-data

⁶ Question was asked from 2010-2015, Q2 2020, Q3 2022, Q4 2022, and Q4 2023

⁷ NY Federal Reserve, $1.13 trillion in outstanding credit card debt in Q4 2023 Household Debt and Credit Report - FEDERAL RESERVE BANK of NEW YORK (newyorkfed.org)