The Property Tax and Insurance Squeeze: How Hidden Costs Price Out Homeowners

Rachel and Tom bought their first home in Phoenix in 2019. They paid $285,000. Their monthly mortgage payment was $1,420. They could afford it.

In 2025, their monthly payment is $2,180. The mortgage didn't change. The house did.

Property taxes climbed from $285 to $475 per month. Homeowners insurance jumped from $115 to $285 per month. The increases weren't optional. The bank requires both. Without them, the mortgage goes into default.

Rachel and Tom's income increased 12% since 2019. Their housing costs increased 53%.

They're not alone. Across the United States, property taxes and insurance premiums are rising faster than wages, faster than home values, and faster than most homeowners anticipated when they calculated what they could afford.

The mortgage calculators lie. They show you the loan payment. They don't show you the squeeze.

---

In This Article

• The Real Cost of Homeownership
• Why the Mortgage Calculator Misleads
• Property Tax Acceleration
• The Insurance Crisis
• Income Required vs. Income Available
• Who Gets Squeezed Hardest
• What Happens Next

---

The Real Cost of Homeownership

The median home price in the United States sits at $426,000 for existing homes. Most mortgage calculators focus on the principal and interest payment for that loan.

Principal + Interest calculation (6.5% rate, 10% down):

• Loan amount: $383,400
• Monthly P&I: $2,422

That's the number people remember. That's the number they compare to their rent. That's the number that makes them think they can afford to buy.

The actual monthly cost:

• Principal + Interest: $2,422
• Property taxes: $531
• Homeowners insurance: $175
• PMI (if under 20% down): $191
• HOA fees (if applicable): $200-$400
• Maintenance reserve: $300-$500

Total monthly housing cost: $3,619 to $4,019

That's 49% higher than the principal and interest alone. The gap between the advertised payment and the real payment traps people in homes they can't actually afford.

---

Why the Mortgage Calculator Misleads

Online mortgage calculators let you input a home price and interest rate. They spit out a monthly payment. The payment looks manageable. You compare it to your rent. You decide you can afford it.

The problem: the calculator uses last year's tax rate and last year's insurance premium. Sometimes it uses the seller's rate—the rate they locked in ten years ago before the climate insurance crisis accelerated.

Your actual costs arrive 60 days after closing. The property tax bill reflects the new assessed value—the price you just paid, not the price the previous owner paid in 2015. The insurance quote reflects 2025 risk models, not 2015 assumptions.

Example: $400,000 home purchase

What the calculator showed:

• P&I: $2,528
• Estimated taxes: $333 (based on previous owner's rate)
• Estimated insurance: $125 (national average)
• Total shown: $2,986

What the first-year bills showed:

• P&I: $2,528 (accurate)
• Actual taxes: $500 (reassessed at purchase price)
• Actual insurance: $275 (current risk-adjusted rate)
• Total actual: $3,303

The calculator was off by $317 per month—$3,804 per year. That's a car payment. That's childcare for one kid. That's the difference between comfortable and stretched.

---

Property Tax Acceleration

Property taxes fund schools, police, fire departments, roads, and local government. As home values climb, tax revenues climb. Municipalities depend on it.

The problem: home values climbed 47% from 2019 to 2025. Wages climbed 18%. Property taxes followed home values, not wages.

National average property tax rates by state (annual rate as % of home value):

| State | Effective Tax Rate | Annual Tax on $426K Home | |-------|-------------------|-------------------------| | New Jersey | 2.23% | $9,500 | | Illinois | 2.05% | $8,733 | | Texas | 1.60% | $6,816 | | Wisconsin | 1.57% | $6,688 | | Ohio | 1.52% | $6,475 | | Nebraska | 1.50% | $6,390 | | Pennsylvania | 1.43% | $6,092 | | Iowa | 1.43% | $6,092 | | Kansas | 1.32% | $5,623 | | Vermont | 1.76% | $7,498 |

U.S. median: 0.99% Annual tax on median home: $4,217 Monthly escrow: $351

States without income tax (Texas, Florida, Nevada, Tennessee, Washington) compensate with higher property taxes. Homeowners pay either way. The bill just arrives in different envelopes.

The reassessment trap:

Most counties reassess property values every 1-3 years. When you buy a home, they reassess immediately—using your purchase price as the new market value. Your tax bill reflects the new assessment within 90 days.

If you bought during a price surge, your tax bill reflects the peak. If prices decline after you buy, the tax assessment doesn't adjust downward for years. You pay peak-price taxes on a declining-value asset.

---

The Insurance Crisis

Homeowners insurance exists to protect the lender. If the house burns down, floods, or gets destroyed by a hurricane, the bank wants their money back. Insurance guarantees it.

The problem: climate change made catastrophic weather events more frequent. Insurers lost money. They responded by raising premiums, reducing coverage, and pulling out of high-risk markets entirely.

Average annual homeowners insurance premiums (2025):

| State | Average Annual Premium | Monthly Escrow | |-------|----------------------|---------------| | Florida | $10,996 | $916 | | Louisiana | $6,354 | $530 | | Texas | $4,456 | $371 | | Oklahoma | $4,417 | $368 | | Colorado | $4,257 | $355 | | Kansas | $4,046 | $337 | | Nebraska | $3,938 | $328 | | Mississippi | $3,728 | $311 | | South Dakota | $3,486 | $291 | | Missouri | $3,393 | $283 |

U.S. median: $2,377 annually ($198/month)

Florida homeowners pay 363% more than the national median. Louisiana pays 167% more. These aren't coastal mansions—these are average homes in hurricane zones.

The withdrawal problem:

Major insurers pulled out of California and Florida entirely in 2024-2025. State-backed insurers of last resort stepped in. They charge higher premiums. They offer less coverage. They operate at the edge of insolvency.

When a major hurricane hits, the state insurer pays claims until the fund runs dry. After that, homeowners get partial payment—or nothing. The mortgage stays. The house is gone. The debt remains.

---

Income Required vs. Income Available

Mortgage lenders use a simple rule: your housing payment cannot exceed 28% of your gross monthly income. This is the "front-end ratio."

Income required to afford median home ($426,000):

• Monthly PITI payment: $3,128 (P&I + taxes + insurance, no HOA)
• Required monthly income: $11,171
• Required annual income: $134,057

Actual U.S. median household income (2024): $83,730

Gap: $50,327 (60% short)

74.6% of American households earn less than $134,057. Three-quarters of households cannot qualify for a mortgage on a median-priced home using standard lending ratios.

The people who can afford homes aren't the people working median-wage jobs. They're either:

1. High earners (top 25% of income)
2. Dual high-income households
3. People with family money for larger down payments
4. People who bought years ago and locked in lower prices

Everyone else rents—or stretches into payments that consume 35-45% of income instead of the recommended 28%.

---

Who Gets Squeezed Hardest

The property tax and insurance squeeze doesn't hit everyone equally. It concentrates on specific groups:

Recent buyers: People who purchased in 2021-2024 paid peak prices. Their tax assessments reflect those prices. Their insurance rates reflect current risk models. They have no equity cushion to absorb increases.

Fixed-income homeowners: Retirees who paid off their homes decades ago thought they'd live mortgage-free. They still pay property taxes and insurance. Those costs climbed 60-100% in five years. Social Security cost-of-living adjustments don't keep pace.

Climate-risk homeowners: Anyone in a flood zone, wildfire zone, hurricane zone, or tornado alley pays 2-5x more for insurance than homeowners in low-risk areas. The gaps widened dramatically from 2020-2025.

Low-to-moderate income homeowners: Households earning $50,000-$100,000 who bought during the affordable era (2010-2019) now face tax and insurance bills that consume 8-12% of gross income—before the mortgage payment.

The Florida example:

A teacher and a nurse bought a $240,000 home in Tampa in 2018. Combined income: $95,000.

• 2018 monthly costs: $1,680 (P&I + taxes + insurance)
• 2025 monthly costs: $2,540 (same P&I, higher taxes and insurance)

Their income increased to $108,000 (13.7% raise over 7 years). Their housing costs increased 51%. They now spend 28% of gross income on housing—up from 21% in 2018. They didn't refinance. They didn't move. The house just got more expensive.

---

What Happens Next

The property tax and insurance squeeze creates three outcomes:

Outcome 1: Forced selling

Homeowners who can't afford the increased costs sell. They take whatever equity they've built and move somewhere cheaper—usually farther from jobs, family, and services. This accelerates urban sprawl and concentrates poverty in cheaper, higher-risk areas.

Outcome 2: Deferred maintenance

Homeowners who can't sell (underwater, no equity, bad timing) stop maintaining the property. Roofs don't get replaced. HVAC systems don't get serviced. Foundations don't get repaired. The home deteriorates. Property values decline. The neighborhood suffers.

Outcome 3: Cost absorption

Homeowners who can't sell and won't defer maintenance absorb the costs by cutting other spending. Retirement contributions stop. College savings stop. Medical care gets delayed. Vacations disappear. The house eats everything.

All three outcomes concentrate wealth among people who bought homes before the squeeze began—or who earn enough that the squeeze doesn't matter.

The mortgage calculator promised affordability. The tax assessor and insurance company delivered reality.

Rachel and Tom in Phoenix are still in their home. They stopped contributing to retirement accounts. They canceled their daughter's dance classes. They don't eat out anymore.

The mortgage payment is $1,420. It never changed. Everything else did.

That's the squeeze.

---

Data Sources

All statistics from:

• National Association of Home Builders (NAHB), "Households Priced Out of the Housing Market" (March 2025)
• U.S. Census Bureau, Housing Vacancy Survey (Q3 2025)
• Federal Reserve, Report on the Economic Well-Being of U.S. Households (2024)
• Insurance Information Institute, "Facts + Statistics: Homeowners and renters insurance" (2025)
• Statista, median home price forecasts (2025)
• Tax Foundation, property tax data by state
• ATTOM Data Research, home equity and tax burden analysis

For detailed housing data tables: Housing Investment Access Data

---

Analysis by Shaela Beard | Follow @shaelabeard on TikTok