Property Taxes & Homeowners Insurance: A Double Whammy For Would-Be Buyers

The contract was signed, the Florida mortgage was approved and the buyer was set to close on the $299,000 home in Palm Beach County.

Then the first-time home buyer, on the verge of closing the deal, learned how much insurance would cost: $4,700 a year.

The big premiums pushed his monthly payment past the mortgage lender’s comfort level, and approval for the loan was yanked.

The botched sale is a scenario becoming all too common amid the state’s housing hangover, real estate brokers and affordable housing experts say.

Even as some sellers have lowered their listing prices, soaring insurance costs and real estate taxes have killed deals and sent buyers to the sidelines.

The owner of the house referenced above, which is located in Royal Palm Beach, struggled to find a buyer who could take the insurance premium and property taxes that accompany what would seem to be an affordable home in Palm Beach County’s pricey real estate market.

He eventually sold the home to a relative for an amount far below the list price, said Douglas Rill, the agent who listed the house. Rill calls taxes and insurance, once little more than an afterthought for home buyers, “a double whack on the head” — one that countless owners are starting to feel the pain from.

“It’s squeezing buyers. At least it’s not a triple whack. Insurance and taxes are going up, but prices are softening,” Rill said.

Those soft prices finally hit home when the Florida Association of Realtors said prices in once-sizzling Palm Beach County and the Treasure Coast had fallen 6 percent in August compared to a year earlier. Realtors hope that area sellers are finally facing reality after months of denial that plummeting sales and ballooning inventory foretold a weak market.

But is it too little, too late?

After two years of powerful hurricanes, insurance companies have doubled or even tripled premiums. Meanwhile, soaring property values are catching up with home buyers, whose tax bills are based on home prices — and go up along with home price appreciation.

Tax hikes, at least, are an expense homeowners can plan for. If you buy a home this year, its taxable value will adjust next year to something closer to what you paid for it. But how much property insurance bills will rise is anyone’s guess.

After her homeowners insurance premium more than doubled to $5,050 a year, Teresa Badillo of Boca Raton plans to cut modest donations she makes to charities. The costs of caring for her autistic son leave little room in her budget for unexpected increases.

“I have enough expenses. Anything added to our budget just kills us,” Badillo said.

Jo Nagorka of Tequesta got an even bigger shock from her insurer.

Her bill soared to a ridiculous $8,595 a year, and Nagorka is looking for a part-time job. The mother of a 10-year-old boy, she’s feeling the squeeze on both ends. As her ownership costs rise, her income as a part-time real estate agent has fallen, thanks to a Florida housing market that’s gone from red-hot to “dead as a doornail.”

Nagorka is counting the years until her husband, a teacher, retires so they can move to a cheaper part of the country.

“We’ll definitely leave Florida when he retires,” Nagorka said.

Many Florida homeowners with houses currently on the market hope to follow this example and make the move out of the state. But with home sales slumping, those sellers are finding it hard to cash out the real estate gains made possible by the soaring home prices of 2001-2005.

Experts see no end to the affordability crunch that began with soaring home prices. Now that prices have flattened, insurance and taxes are conspiring to price out buyers. Even when people can afford the Florida mortgage, they can’t afford the insurance and taxes.

Today’s dark mood is a stark contrast from the real estate euphoria of a year ago. In 2005, homeowners could scarcely believe their good fortune. Historically low-interest Florida mortgage loans sent sales (and prices) soaring as countless teachers, bartenders and handymen became overnight real estate speculators.

From May 2004 to May 2005 alone, the median price of an existing single-family home in Palm Beach County rose by $100,700. That means the typical homeowner added nearly $2,000 a week to his net worth for doing nothing more than paying their Florida home loan on time.

After the party ended — last call was in November, when home prices peaked — came the hangover. Sales slowed, prices flat-lined and the focus shifted to the twin budget busters of insurance premiums and property taxes.

In August, sales of single-family homes plunged 50 percent in Palm Beach County and dipped 48 percent in the Treasure Coast compared with the same period last year.

“It’s absolutely decimating people,” said Mike Dooley, President of the Florida Association of Realtors and a broker in Hobe Sound.

Dooley recently saw a buyer walk away from a $6,000 deposit on a $1 million home after he learned just how much insurance would cost. The 1-2 punch of insurance and real estate taxes leaves first-time buyers with little choice but to rein in their expectations.

“Buyers are coming in and lowering their sights. Someone who was looking for a $1 million home now might be looking for a $700,000 home,” Dooley said.

Paula Ryan, the director of West Palm Beach’s Department of Economic and Community Development, worries programs to help lower- and moderate-income buyers afford homes might only be setting up buyers for trouble… once the insurance and tax bills arrive.

No matter how much buyers earn, skyrocketing insurance bills easily can outpace their ability to pay. North Palm Beach insurance agent John Farr says he’s telling people to get insurance quotes before thinking about signing a contract on a home… otherwise, foreclosure could rear its ugly head.

“Be very careful about signing a contract with earnest money before you shop around for insurance. That can come as a terrible shock,” he said.