Non-mortgage costs were 40 percent of housing budgets through 2021

In 2021, Americans with a mortgage spent over 40 percent of their housing budgets on non-mortgage-related costs. Non-mortgage costs have exceeded 40 percent of the total monthly housing bill every year from 2015 through 2021, both for homeowners with mortgages overall and for low- and moderate-income homeowners with mortgages specifically.¹

Among the 58 percent of homeowners with a mortgage, 17 percent of their total housing costs were devoted to property taxes, 14 percent to utilities, 6 percent to insurance, and 4 percent to maintenance.² There was little difference in these cost shares across income groups, but significant variation by geographic location. These findings from a new analysis by our team show that overall, non-mortgage costs varied across the country, but not as much as mortgage costs. Understanding non-mortgage costs is important for policymakers and stakeholders who aim to improve housing affordability.

Housing market saw substantial changes from 2015 through 2021

Our analysis focuses on metropolitan areas across the nation (including the Minneapolis-St. Paul area), drawing on 2015–2021 data from the American Housing Survey (AHS), which is sponsored by the U.S. Department of Housing and Urban Development and conducted by the U.S. Census Bureau.³ A lot happened in the housing market from 2015 through 2021. New homeowners—and longer-term homeowners with the ability to refinance—benefited from low mortgage rates. Rents increased by 23 percent, while home values grew by more than 50 percent.

What did all this mean for homeownership? On net, owning a home was a better deal financially relative to renting a physically similar property, even accounting for the substantial non-mortgage costs that homeowners pay. Homeownership rates rose from 62 percent to about 64 percent from 2015 through 2021. Growth was particularly pronounced among people of color and younger households.

Examining non-mortgage costs by type and income level

In 2021, mortgagors (i.e., homeowners with mortgage debt) paid an average of $2,065 every month for their housing. That was split between about $1,180 for their mortgage and $885 in non-mortgage-related housing costs. Mortgage costs were about 13 percent higher than they were in 2015, while non-mortgage costs were about 21 percent higher. Inflation, not including food or energy costs, was about 14 percent over the same time period.

From 2015 through 2021, the largest shifts in mortgagors’ non-mortgage costs related to property taxes and utilities. Among all households with mortgages, property taxes accounted for 15.3 percent of housing costs in 2015. As Figure 1 shows, by 2021 that share had increased to 16.9 percent. Utilities accounted for 14.4 percent of mortgagors’ costs in 2021, down from 15.2 percent in 2015.

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In 2021, monthly mortgage costs amounted to about $870 for low- and moderate-income (LMI) homeowners with mortgages. LMI mortgagors consistently spent fewer dollars on insurance, maintenance, property taxes, and utilities than their higher-income peers. But the share of non-mortgage costs in their total housing budget was about the same, at 44 percent for LMI mortgagors and 42 percent for non-LMI mortgagors. The small gap between shares was largely due to utility costs, which were responsible for 2.5 to 3.0 percentage points more of LMI mortgagors’ housing budgets than non-LMI mortgagors’ housing budgets.

While LMI households spent less money on housing, they were still more likely to be cost-burdened than higher-income households. That means they were more likely to spend more than 30 percent of their income on their mortgage and other housing costs.

The mix of homeownership costs varies by location

The shares of housing costs that are made up of mortgage and non-mortgage costs vary considerably across metropolitan areas.⁴ For example, in the Rochester, NY, metropolitan statistical area (MSA) in 2021, non-mortgage costs made up 53 percent of mortgagors’ housing expenses, while mortgagors in the Las Vegas-Henderson-Paradise, NV, MSA spent 36 percent of their housing budget on the same. Figure 2 shows mortgage and non-mortgage cost shares for each metropolitan area included in the 2021 AHS data.

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Home prices may be a driver of differences in non-mortgage cost shares. Though mortgage and non-mortgage costs alike—in dollar terms—are higher in expensive metro areas, the share of mortgage costs in, for example, the San Francisco metro area is at the high end of the range in our data, so the share of non-mortgage costs is at the low end. In the Minneapolis-St. Paul-Bloomington, MN-WI, MSA, mortgage and non-mortgage costs alike were on the lower side of the distribution of metro areas. As a share of total costs, non-mortgage costs in the Twin Cities stood at 41 percent for mortgagors overall.

Non-mortgage costs form a significant share of housing costs

Altogether, American homeowners spent nearly as much on non-mortgage costs as they did on mortgage costs in 2021. If we focus on the 58 percent of homeowners with a mortgage, we learn that non-mortgage costs were nearly on par with mortgage costs for many households. Indeed, if we include the 42 percent of homeowners without mortgages, then the aggregate spending on non-mortgage costs in 2021 is roughly the same as that on mortgage costs.

These non-mortgage costs can differ significantly by region. Notably, the AHS can’t answer important questions about the details of some of the variation. Did property taxes increase in some areas because voters approved new levies or because residential assessed values increased? Did utility costs grow because of unusual weather events or because of a more systemic issue? Homeowners insurance premiums are changing, but what about the quality of coverage?

For Community Development and Engagement at the Federal Reserve Bank of Minneapolis, our focus on LMI households means that accurate understanding of the full range of housing costs is important. This is especially the case in the many places where non-mortgage costs are a large share of total housing costs. Our analysis affirms that LMI households’ access to stable homeownership hinges on more than property values and mortgage rates.

Endnotes