Do house prices affect Homeowners Insurance Rates?
Ever wonder if the value of your home effects your homeowners insurance rate
Housing prices have really come down this year and some real estate analyst claim that the drop in home values could last through 2008. I'm not a real estate analyst nor do I believe there is any cookie cutter solution for real estate metrics. Each state is different, each city in each state is different and to drill down further each subdivision within each city is different thus home prices and buyer/seller trends differ greatly. There are tons of websites that blog about or list home values such as www.zillow.com but fact remains this is just one person or one computer algorithms opinion.
Your homeowners insurance is based on several factors. One factor is your homes price including replacement cost if you suffer a total loss. Your homeowners insurance rates or premiums usually go up as time goes on as inflation does it's thing. So what happens if there is a major downturn in the market? Is your homeowners insurance premium effected similarly? It's a good question and it kind of depends on how much weight your home insurance company gives the price of the home.
On the opposite spectrum one could assume that homeowners insurance premiums would go way up if a home market has spiked and the perceived value of the home did as well. To answer the question for both scenarios I believe your homeowners insurance will not sway significantly in either direction and more specifically it is extremely likely that your homeowners insurance will never go down in cost. Even in a bad home market the fact is that homes still appreciate they just don't appreciate at a rate that one usually sees. I have read that the average increase in value is around 6% per year. Depending on the location this has sometimes gone up 20-30% in a year but likely it will not go down. Your homeowners insurance company assumes many factors into your premium and they assume some appreciation every year.
So unfortunately, in a down market your homeowners insurance will likely stay the same or go up a bit. On the other hand, this is a good thing if a market has a huge upswing. Your insurance company probably won't fluctuate your home insurance rate at the same percentage that your home appreciates.