TheMReport

TH E M R EP O RT | 45 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA Homes a Gateway Purchase A recent study shows new homebuyers spend nearly $5,000 more than those who forgo moving properties. H ome purchases are the trigger to a wealth of other spending, accord- ing to the newly Na- tional Association of Home Build- ers (NAHB) analysis of Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics. The research shows that in the fi rst two years after buying a newly built single-family home, buyers will typically spend $4,700 more than homeowners who stay in a home they already own. Broken down, it's estimated a new buyer will spend $2,500 on furnishings, $1,250 on appliances, and $714 on property repairs. It's not just buyers of new homes who spend money on related costs, NAHB research shows. People buying an older home will typically spend another $4,000 than a nonmoving home- owner. The additional money is typically used for remodeling, home furnishings, and appliances. Remodeling typically accounts for about half of the additional spending, most of that in the fi rst year after closing. Furnishings, on average, accounted for $1,200 of the additional spending, and appliances accounted for a little more than $400. Buyers of both types of single- family homes tend to be larger, wealthier households than home- owners who stay put, according to the NAHB. Additionally, the buyers are typically better edu- cated and tend to be concentrated in urban areas. The NAHB survey says that the additional spending doesn't detract from spending on non- home related items. People moving into newly built or older single-family houses typically don't cut back their spending on entertainment, transportation, travel, groceries, restaurants, and other items. The NAHB research controlled for differences in household characteristics. The study updated similar research conducted in 2008. That study, based on re- search collected during the hous- ing boom, also showed higher spending by people who bought new or existing properties, with much of the additional spending on appliances, remodeling, and home furnishings. The Costs of Higher-priced Insurance Home insurance prices are on the incline, but it's not just consumer pocketbooks they're impacting. S ince 2000, home insur- ance prices have risen nearly four times faster than the median family income. They've also risen 21 percent faster than the personal contribution to healthcare over the same period of time. Two primary reasons are caus- ing the industry to raise prices so rapidly: 1) the frequency of large storms is increasing, and 2) the cost of covering the insured damage from these storms is also rising. What is less well known is the proverbial "rest of the story." The rest of the story is how these rapid increases in insur- ance prices have hurt consumers and benefi ted the industry. The Negative Impact for Consumers For homeowners, the average price of home insurance in 2000 was $508. By 2015, that average price had increased to $1,169. That was an increase of $661, or 130 percent. The increased cost of $661 for home insurance translates directly into a reduced amount of mortgage payment for which consumers qualify. In comparison to median family income, which was $41,990 in 2000 and by 2015 had increased to $56,516, this was an increase of only 34 percent. While mortgage rates were dropping to historic lows for much of the millennium, home affordability improved. During this period of dropping mortgage rates, the rise in home insurance rates went unnoticed. Now it's a different situation— home mortgage rates are beginning to rise. Adding this on top of the surprisingly fast rise and continu- ing increase in insurance prices, home insurance is directly affect- ing the affordability of homes. The Positive Impact for Insurers Home insurance loss ratios vary dramatically based on catastrophic events such as hur- ricanes, fi res, or hailstorms. To minimize the effect of catastroph- ic, short-term events, ValChoice, a website that provides free reports on auto and homeowners insur- ance, uses a linear trend line to show the changing loss ratio over the 15-year term of this study. With this approach, ValChoice gets a clear picture of the value home insurance is providing homeowners. The result of this analysis is that between 2000 to 2015, the reduction in the percentage of premiums policyholders paid to their insurers that were returned to the insured in the form of a claim payment was reduced by 19.5 percent. In 2015, this amounted to nearly $21 billion of incremental profi ts for insurance companies compared to 2000. What Consumers Can Do Whether home, car, or health insurance, the prices consumers are paying are increasing dra- matically. This increase is both in terms of real dollars and as a percentage of the family income. Consumers need analytics that calculate both the value of the insurance they buy and the protection it offers. Historically, this type of data has not been available. Finally, there are tech- nology companies collecting and analyzing data on the insurance industry so consumers can make better decisions about the insur- ance they buy. Regulators, lawmakers, and the best insurance companies need to embrace transparency. Only through transparency will consumers have the information they deserve when spending large sums of money on insurance. ®

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