Housing affordability looks better on paper than it may feel in real life when homeowners insurance is left out of the calculation.
Most affordability discussions focus on home prices, mortgage rates, income and down payments. Those are critical, but they do not capture the full cost of ownership. Homeowners insurance, property taxes, HOA dues, flood insurance where needed and maintenance can all change the monthly payment.
That is why the insurance-adjusted housing affordability problem matters in 2026.
Key takeaways
- NAR’s standard Housing Affordability Index stood at 113.7 in March 2026.
- NAR said the index fell to 109.0 when homeowners insurance costs were included.
- Treasury/FIO found homeowners insurance premiums rose 8.7% faster than inflation from 2018 to 2022.
- Buyers in the highest-risk ZIP codes paid average premiums of $2,321, 82% more than buyers in the lowest-risk ZIP codes.
- Mortgage calculators can understate true affordability if they exclude insurance.
- Buyers should get insurance quotes early, not after they are close to closing.
What insurance-adjusted affordability means
Traditional affordability measures often estimate whether a typical household can qualify for a mortgage on a typical home.
The problem is that many measures focus mainly on mortgage principal and interest. Some also include taxes, but insurance is often excluded or simplified.
NAR’s insurance-adjusted Housing Affordability Index attempts to fix that gap. NAR reported that as of March 2026, the standard Housing Affordability Index stood at 113.7, meaning the typical family earned about 14% more than needed to qualify for a median-priced home under the standard measure. But when homeowners insurance was factored in, the index dropped to 109.0.
That does not sound like a huge difference until a buyer is already near the edge of the budget. For payment-sensitive buyers, a higher insurance premium can determine whether a home is comfortable, risky or unaffordable.
Why the standard number can mislead buyers
A buyer may qualify based on principal and interest, then discover that the full monthly payment is much higher.
The real monthly cost may include:
- mortgage principal and interest,
- property taxes,
- homeowners insurance,
- flood insurance where needed,
- mortgage insurance,
- HOA or condo dues,
- utilities,
- maintenance,
- and emergency reserves.
Insurance is especially important because it can vary dramatically by property and ZIP code. A newer home with mitigation features may cost less to insure than an older home in the same area. A home with a newer roof may receive a better quote than a similar home with an aging roof.
Insurance costs are rising unevenly
The Treasury/FIO homeowners insurance report shows why insurance cannot be treated as a small footnote.
Treasury reported that average homeowners insurance premiums rose 8.7% faster than inflation from 2018 to 2022. In the highest-risk 20% of ZIP codes, average premiums were $2,321, 82% higher than in the lowest-risk ZIP codes. Treasury also found nonrenewal rates were about 80% higher in the highest-risk ZIP codes.
That means two buyers with similar incomes and mortgage rates can face very different affordability outcomes depending on the home’s location and risk profile.
Why this matters before making an offer
Buyers often get serious about insurance after the offer is accepted. That can be too late.
Insurance should be checked before the buyer becomes emotionally or contractually committed. If the premium is much higher than expected, the buyer may need to lower the price range, ask for seller concessions, increase cash reserves or choose a different property.
The National Association of Insurance Commissioners recommends asking how to estimate the insurance cost before buying a home, how claims history may affect the premium and whether flood or earthquake coverage is needed, because homeowners insurance does not cover either in standard policies.
Homeowners insurance vs. flood insurance
The insurance-adjusted affordability problem can get even larger when flood insurance is required or prudent.
Homeowners insurance and flood insurance are separate. FloodSmart says most homeowners and renters insurance does not cover flood damage, and the NFIP offers separate policies for homeowners, renters and businesses.
A buyer who only prices homeowners insurance may miss a separate flood-insurance cost.
What this means
The affordability question should not be: “Can I afford the mortgage?”
It should be: “Can I afford the full cost of owning this specific home?”
A buyer should request insurance quotes early, estimate taxes carefully and build a budget that includes maintenance and reserves. A seller should understand that insurance costs may affect buyer demand, especially if the property is older, riskier or harder to insure.
Insurance-adjusted affordability is not an academic concept. It is the monthly payment buyers actually face.
FAQ
What is insurance-adjusted housing affordability?
It is an affordability measure that includes homeowners insurance costs instead of focusing only on mortgage-related costs.
How much did insurance change NAR’s affordability index?
NAR said the standard Housing Affordability Index was 113.7 in March 2026, but fell to 109.0 when homeowners insurance was included.
Why are insurance costs important for buyers?
Insurance is part of the monthly cost of ownership. A higher premium can reduce how much home a buyer can comfortably afford.
Do mortgage calculators include insurance?
Some do, but many use estimates. Buyers should get actual quotes for the specific property.
Is flood insurance included in homeowners insurance?
Usually no. Flood insurance is separate, and FloodSmart says most homeowners and renters insurance does not cover flood damage.
Should sellers care about insurance costs?
Yes. If a home is expensive or difficult to insure, buyers may negotiate harder, ask for concessions or walk away.
Sources with clickable URLs
- [NAR — A New Look at Housing Affordability: The Insurance-Adjusted HAI](https://www.nar.realtor/news/economists-outlook/a-new-look-at-housing-affordability-the-insurance-adjusted-hai)
- [U.S. Treasury/FIO — Homeowners Insurance Costs Rising, Availability Declining](https://home.treasury.gov/news/press-releases/jy2791)
- [NAIC — A Consumer’s Guide to Home Insurance](https://content.naic.org/sites/default/files/publication-hoi-pp-consumer-homeowners.pdf)
- [FloodSmart/NFIP — Buy a Flood Insurance Policy](https://www.floodsmart.gov/get-insured/buy-a-policy)
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