MW Home insurance costs so much now that people can't pay their mortgages. Another looming threat could make things even worse.

By Aarthi Swaminathan

Mortgage delinquencies are on the rise, especially among vulnerable first-time home buyers

In the span of a year, Otto Catrina's property-insurance premiums went up from $7,000 to $12,000.

The real-estate agent, who has a home in the Sierra Nevada mountains close to Yosemite National Park, is on the California FAIR plan, a state-run insurer of last resort for people who can't get insurance through a traditional insurance company. Catrina has been on the FAIR plan for about three years for his mountain house.

"I mean, it's just crazy," Catrina told MarketWatch about the sudden price increase, which happened even though he hadn't filed any major claims.

Catrina counts himself as lucky: He can afford to pay the higher premiums. But as someone who helps people buy and sell homes for a living, he worries about the impact of soaring insurance costs on aspiring home buyers at a time when affordability is already so strained. Insurance costs are largely unavoidable: Homeowners who have a mortgage are required by their lenders to have home insurance.

Even if aspiring home buyers can qualify for a mortgage, some can't ultimately go through with the purchase because they are unable to obtain the required insurance due to the high cost, Catrina told MarketWatch. "They can't buy it because they can't afford it," he said. "That's diaper money, that's money for food that you're taking off the table."

Owning a home has long been at the core of the American dream. But millions of home buyers and homeowners are now waking up to a nightmare of ever-rising insurance costs. After jumping 20% between 2022 and 2024, the average annual cost of home insurance is projected to go up by 8% by the end of 2025, according to the insurance-comparison website Insurify.

The average homeowner is expected to spend an additional $261 on insurance premiums this year. Climate change and tariffs are are likely to to push up insurance costs, as homes sustain more damage from natural disasters and costs to repair them rise.

For well-off homeowners, higher premiums amount to a headache that they may complain about, but can afford to solve. For others, rising insurance costs present a serious threat to their financial well-being.

Homeowners who have a mortgage backed by the Federal Housing Administration, who tend to be first-time buyers with lower incomes, are particularly at risk. Their rising home-insurance costs are forcing them to make trade-offs, and some are falling behind on their mortgage payments as a result, real-estate experts told MarketWatch. Data show a growing share of FHA-backed mortgages are becoming delinquent, which could lead to foreclosures down the road.

For these borrowers, a sudden spike in insurance payments could have a big impact. Unlike the principal in a mortgage payment, insurance premiums and property taxes "fluctuate so much that it is making it very, very difficult for people to make these payments," said Alanna McCargo, the former head of Ginnie Mae, which securitizes FHA mortgages and sells them to investors on the secondary market.

Vulnerable homeowners face a 'payment shock' from rising insurance premiums

The national mortgage-delinquency rate was up 16 basis points from a year ago to 3.2% in May. Most of the increase was due to missed payments on FHA loans, according to the most recently available data from Intercontinental Exchange $(ICE.AU)$.

FHA borrowers' financial distress can be attributed partly to their rising home-insurance costs. Lois Healy, a housing counselor in Florida who is certified by the U.S. Department of Housing and Urban Development, said she's been getting more calls from FHA borrowers struggling to make their mortgage payments because of surging insurance premiums and home-repair costs.

There's been an uptick in mortgage delinquencies and foreclosures in the Fort Myers, Fla., area that feels similar to the subprime-mortgage crisis, Healy said. With two decades in the industry, the 68-year-old witnessed reckless lending during the subprime crisis that led to widespread foreclosures after borrowers got mortgages they could not afford to pay.

Back then, adjustable-rate mortgage payments suddenly ballooned, sending a "payment shock" to borrowers and leaving millions of homeowners unable to keep up, Mark Fleming, chief economist at First American, told MarketWatch.

The mortgage market is now more regulated than it was during the loose-lending days of the early 2000s, and risky loans have largely been eliminated. Now, the potential payment shock for homeowners comes from a different source.

"When payment shock rears its ugly head, in this case through big increases in insurance premiums, it creates distress for many borrowers," Fleming said.

Healy has seen this happen to the clients she counsels. In some cases, homeowners have experienced severe damage to their homes from hurricanes and have already used a significant portion of their savings to fix up the house. But then they see their insurance premiums go up from $1,500 to $7,000, for example, she said.

Sharply rising premiums take "an affordable payment and make it out of range for a client that's on a fixed income, or just a normal person making $45,000 to $50,000 a year," Healy said. "They can't afford to make their mortgage payment, buy groceries, pay for a car, that sort of thing."

Why FHA borrowers are particularly at risk

There is evidence linking rising insurance premiums to mortgage delinquencies. In one study that was circulated by the Federal Reserve Bank of Dallas, researchers connected higher premiums to the higher likelihood of mortgage delinquencies by looking at data from insurance policies held by 5 million borrowers.

The effect was more pronounced among FHA loans, Stephanie Johnson, one of the co-authors of the paper and an assistant professor of finance at Rice University's business school, told MarketWatch. FHA borrowers are particularly susceptible to sudden increases in payments, she said, because "these borrowers are close to the limit of what they can afford before the premium increase happens."

Data on mortgage-backed securities indicate that FHA borrowers tend to have lower credit scores, a lot of debt relative to their income and little in savings, Tobias Peter at the American Enterprise Institute, a right-leaning think tank, told MarketWatch. FHA loans typically require a down payment of just 3.5%, and many lower-income borrowers even get down-payment assistance for that small amount.

Nearly 80% of first-time homeowners with an FHA loan have less than one month's worth of savings to cover their mortgage if they suddenly find themselves without a job or face a sudden medical emergency, Peter added.

In other words, if insurance premiums were to go up even more without a corresponding increase in incomes, delinquencies could go up in the months and years to come.

The findings from the study linking increased premiums to mortgage delinquencies underscore a broader concern, Peter said - that "defaults often occur not because of minor cost increases, but because underwriting practices are placing borrowers in financially vulnerable positions from the outset."

To be sure, the rising delinquencies among FHA loans don't represent a systemic risk to the housing industry, because the government has many tools to prevent foreclosures. The overall foreclosure rate is still below prepandemic levels.

The other looming factor driving up insurance premiums: Climate-related disasters

But as devastating natural disasters become more intense and frequent, millions of homeowners are increasingly at the mercy of insurance companies, as insurers look to increase premiums to cover ever-mounting losses from floods, storms and wildfires.

In California, the state approved State Farm's emergency request to increase its rates by an average of 17% for homeowners starting June 1, after the insurer said it was facing $7 billion in claims in the wake of January's Los Angeles County wildfires. In Illinois, the company plans to raise homeowners' rates by 27% on average, CBS News Chicago reported, because the insurer is paying out more in claims than it collects in premiums.

State Farm said the increases are driven in part by inflation and severe weather. (Illinois is second among states where homeowners file the most claims for hail damage.)

"The premiums for each state are determined [by] the expected costs and risk for that individual state," a State Farm spokesperson told MarketWatch. "Our rates are based on the need to pay anticipated future claims informed by actual claims experience in an area - from weather, hail, wind, water, fire, accidents, liability, theft and so on."

Read more: Where homeowners insurance costs are rising the most - and how Trump's tariffs could make them worse

Homeowners nationwide have been affected by premium hikes: Between 2021 and 2024, premiums rose in 95% of ZIP codes in the U.S., according to an analysis from the Consumer Federation of America.

People who live in places most at risk of extreme weather pay higher premiums than people in the lowest-risk areas, a separate Treasury Department report found. But even places where natural disasters aren't as common are seeing rate increases. For instance, Utah saw the biggest jump in premiums between 2021 and 2025, at 59%, followed by Illinois and Arizona, according to CFA.

And as some homeowners grapple with the aftermath of a disaster, in some counties, foreclosure numbers have been increasing, real-estate agents said. Nationally, the rate of home loans going into foreclosure was up nearly 17% in July compared with the previous year, according to ICE.

MW Home insurance costs so much now that people can't pay their mortgages. Another looming threat could make things even worse.

By Aarthi Swaminathan

Mortgage delinquencies are on the rise, especially among vulnerable first-time home buyers

In the span of a year, Otto Catrina's property-insurance premiums went up from $7,000 to $12,000.

The real-estate agent, who has a home in the Sierra Nevada mountains close to Yosemite National Park, is on the California FAIR plan, a state-run insurer of last resort for people who can't get insurance through a traditional insurance company. Catrina has been on the FAIR plan for about three years for his mountain house.

"I mean, it's just crazy," Catrina told MarketWatch about the sudden price increase, which happened even though he hadn't filed any major claims.

Catrina counts himself as lucky: He can afford to pay the higher premiums. But as someone who helps people buy and sell homes for a living, he worries about the impact of soaring insurance costs on aspiring home buyers at a time when affordability is already so strained. Insurance costs are largely unavoidable: Homeowners who have a mortgage are required by their lenders to have home insurance.

Even if aspiring home buyers can qualify for a mortgage, some can't ultimately go through with the purchase because they are unable to obtain the required insurance due to the high cost, Catrina told MarketWatch. "They can't buy it because they can't afford it," he said. "That's diaper money, that's money for food that you're taking off the table."

Owning a home has long been at the core of the American dream. But millions of home buyers and homeowners are now waking up to a nightmare of ever-rising insurance costs. After jumping 20% between 2022 and 2024, the average annual cost of home insurance is projected to go up by 8% by the end of 2025, according to the insurance-comparison website Insurify.

The average homeowner is expected to spend an additional $261 on insurance premiums this year. Climate change and tariffs are are likely to to push up insurance costs, as homes sustain more damage from natural disasters and costs to repair them rise.

For well-off homeowners, higher premiums amount to a headache that they may complain about, but can afford to solve. For others, rising insurance costs present a serious threat to their financial well-being.

Homeowners who have a mortgage backed by the Federal Housing Administration, who tend to be first-time buyers with lower incomes, are particularly at risk. Their rising home-insurance costs are forcing them to make trade-offs, and some are falling behind on their mortgage payments as a result, real-estate experts told MarketWatch. Data show a growing share of FHA-backed mortgages are becoming delinquent, which could lead to foreclosures down the road.

For these borrowers, a sudden spike in insurance payments could have a big impact. Unlike the principal in a mortgage payment, insurance premiums and property taxes "fluctuate so much that it is making it very, very difficult for people to make these payments," said Alanna McCargo, the former head of Ginnie Mae, which securitizes FHA mortgages and sells them to investors on the secondary market.

Vulnerable homeowners face a 'payment shock' from rising insurance premiums

The national mortgage-delinquency rate was up 16 basis points from a year ago to 3.2% in May. Most of the increase was due to missed payments on FHA loans, according to the most recently available data from Intercontinental Exchange (ICE).

FHA borrowers' financial distress can be attributed partly to their rising home-insurance costs. Lois Healy, a housing counselor in Florida who is certified by the U.S. Department of Housing and Urban Development, said she's been getting more calls from FHA borrowers struggling to make their mortgage payments because of surging insurance premiums and home-repair costs.

There's been an uptick in mortgage delinquencies and foreclosures in the Fort Myers, Fla., area that feels similar to the subprime-mortgage crisis, Healy said. With two decades in the industry, the 68-year-old witnessed reckless lending during the subprime crisis that led to widespread foreclosures after borrowers got mortgages they could not afford to pay.

Back then, adjustable-rate mortgage payments suddenly ballooned, sending a "payment shock" to borrowers and leaving millions of homeowners unable to keep up, Mark Fleming, chief economist at First American, told MarketWatch.

The mortgage market is now more regulated than it was during the loose-lending days of the early 2000s, and risky loans have largely been eliminated. Now, the potential payment shock for homeowners comes from a different source.

"When payment shock rears its ugly head, in this case through big increases in insurance premiums, it creates distress for many borrowers," Fleming said.

Healy has seen this happen to the clients she counsels. In some cases, homeowners have experienced severe damage to their homes from hurricanes and have already used a significant portion of their savings to fix up the house. But then they see their insurance premiums go up from $1,500 to $7,000, for example, she said.

Sharply rising premiums take "an affordable payment and make it out of range for a client that's on a fixed income, or just a normal person making $45,000 to $50,000 a year," Healy said. "They can't afford to make their mortgage payment, buy groceries, pay for a car, that sort of thing."

Why FHA borrowers are particularly at risk

There is evidence linking rising insurance premiums to mortgage delinquencies. In one study that was circulated by the Federal Reserve Bank of Dallas, researchers connected higher premiums to the higher likelihood of mortgage delinquencies by looking at data from insurance policies held by 5 million borrowers.

The effect was more pronounced among FHA loans, Stephanie Johnson, one of the co-authors of the paper and an assistant professor of finance at Rice University's business school, told MarketWatch. FHA borrowers are particularly susceptible to sudden increases in payments, she said, because "these borrowers are close to the limit of what they can afford before the premium increase happens."

Data on mortgage-backed securities indicate that FHA borrowers tend to have lower credit scores, a lot of debt relative to their income and little in savings, Tobias Peter at the American Enterprise Institute, a right-leaning think tank, told MarketWatch. FHA loans typically require a down payment of just 3.5%, and many lower-income borrowers even get down-payment assistance for that small amount.

Nearly 80% of first-time homeowners with an FHA loan have less than one month's worth of savings to cover their mortgage if they suddenly find themselves without a job or face a sudden medical emergency, Peter added.

In other words, if insurance premiums were to go up even more without a corresponding increase in incomes, delinquencies could go up in the months and years to come.

The findings from the study linking increased premiums to mortgage delinquencies underscore a broader concern, Peter said - that "defaults often occur not because of minor cost increases, but because underwriting practices are placing borrowers in financially vulnerable positions from the outset."

To be sure, the rising delinquencies among FHA loans don't represent a systemic risk to the housing industry, because the government has many tools to prevent foreclosures. The overall foreclosure rate is still below prepandemic levels.

The other looming factor driving up insurance premiums: Climate-related disasters

But as devastating natural disasters become more intense and frequent, millions of homeowners are increasingly at the mercy of insurance companies, as insurers look to increase premiums to cover ever-mounting losses from floods, storms and wildfires.

In California, the state approved State Farm's emergency request to increase its rates by an average of 17% for homeowners starting June 1, after the insurer said it was facing $7 billion in claims in the wake of January's Los Angeles County wildfires. In Illinois, the company plans to raise homeowners' rates by 27% on average, CBS News Chicago reported, because the insurer is paying out more in claims than it collects in premiums.

State Farm said the increases are driven in part by inflation and severe weather. (Illinois is second among states where homeowners file the most claims for hail damage.)

"The premiums for each state are determined [by] the expected costs and risk for that individual state," a State Farm spokesperson told MarketWatch. "Our rates are based on the need to pay anticipated future claims informed by actual claims experience in an area - from weather, hail, wind, water, fire, accidents, liability, theft and so on."

Read more: Where homeowners insurance costs are rising the most - and how Trump's tariffs could make them worse

Homeowners nationwide have been affected by premium hikes: Between 2021 and 2024, premiums rose in 95% of ZIP codes in the U.S., according to an analysis from the Consumer Federation of America.

People who live in places most at risk of extreme weather pay higher premiums than people in the lowest-risk areas, a separate Treasury Department report found. But even places where natural disasters aren't as common are seeing rate increases. For instance, Utah saw the biggest jump in premiums between 2021 and 2025, at 59%, followed by Illinois and Arizona, according to CFA.

And as some homeowners grapple with the aftermath of a disaster, in some counties, foreclosure numbers have been increasing, real-estate agents said. Nationally, the rate of home loans going into foreclosure was up nearly 17% in July compared with the previous year, according to ICE.

(MORE TO FOLLOW) Dow Jones Newswires

July 15, 2025 14:14 ET (18:14 GMT)

MW Home insurance costs so much now that people -2-

Higher insurance premiums driven in part by climate-related disasters are putting more pressure on homeowners "who are already cost-burdened," and especially those with lower incomes, Harvard University's Joint Center for Housing Studies said in its most recent report on the state of U.S. housing.

Serious mortgage delinquencies have been on the rise since 2024, but states affected by natural disasters - including Florida, South Carolina and Georgia - have seen "significant upticks," according to a new analysis by Cotality.

In parts of North Carolina that were impacted by Hurricane Helene, foreclosures are up, said Lee Linhart, a RE/MAX Rising $(RMAX)$ agent in Hendersonville, N.C.. He's said he's seen firsthand how flooding wiped out people's homes, leaving them with nothing but rubble.

"These people are literally trying to survive," Linhart told MarketWatch. He oversees offices across North Carolina, South Carolina and Tennessee, and has witnessed homeowners unable to make their mortgage payments and fund repairs for their damaged property.

"We're all getting education to learn how to do foreclosures again, because ultimately, they're coming," Linhart said. "For us, these people will never catch up. The odds are they will not catch up on those bills."

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-Aarthi Swaminathan

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