The housing market was fascinating to watch in 2021. Home values showed nearly a 20% increase year-over-year, with some markets (i.e., Tampa, Phoenix) experiencing gains of over 30%. This was great news for sellers, but not so great for buyers.

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If you didn’t change your primary residence last year, you were still affected by market conditions. Regardless of whether you bought or sold your home, the value of your home rose, as did the cost to replace it. Supply and demand were the primary factors driving up resale prices; that’s understandable. But, damage to your home, or a total loss, also became much more costly in the past year.

4 Primary Factors Affecting Home Replacement Costs

In many ways, the rise in home replacement costs in 2021 was a continuation of the unprecedented change we experienced in 2020. Let’s look at what is pushing construction costs and homeowner’s insurance premiums higher.

COVID-19: Many people who wanted to move last year couldn’t find something suitable because of a limited supply of inventory. Instead, they chose to invest in remodeling their existing home. This led to a surge in demand, and cost, of materials (plywood and lumber alone both increased in price by over 125%). Skilled labor was also dramatically affected, with wages rising over 5%.

Supply Chain Issues: There has been an unprecedented delay in obtaining much-needed construction materials to complete home construction and remodeling. Not only has there been a shortage of raw materials, but there have also been logjams in our ports as container ships are unable to unload their cargo because of insufficient numbers of laborers to unload the vessels. In addition, truck drivers to deliver goods to end-users have also been in short supply.

Increased Demand: Construction permits increased about 25% year-over-year in 2021. The tight supply of existing homes for sale has fueled this demand for new homes and remodeling.

Building Code Changes: New elections often lead to changes to codes for increased safety and building standards. Modifications to existing structures and the requirements for additional labor and materials for new construction also directly impact costs and premiums.

The Impact of Weather and Wildfires

Unfortunately, wildfires and hurricanes are occurring much more frequently and are increasing in intensity. In 2020 there were twenty-one named storms and a record-setting number of wildfires that had devastating effects on lives and property.

Non-weather water damage has also driven up the cost of claims experienced by property and casualty insurers. In 2020 alone, losses for insurers due to non-weather water damage exceeded $8 billion.

Talk With Kelly Klee

The cost of insuring high-value homes is increasing, and our clients know that we have our finger on the pulse of developments in property and casualty insurance that affect them. We are committed to providing proper protection at competitive prices now and into the future, which is why our client retention rates are among the best in our industry.

If you’re concerned about your coverage and cost, don’t hesitate to call us at (844) 885-1600. Our experts will help you have peace of mind knowing that you’re protected against rising replacement costs by an insurer we’ve carefully selected for you, and that will be there when you need them.

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