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- Real costs of housing for homeowners with mortgages grew by 1.6 percent
- Average mortgage costs were largely flat, but other housing expenses outpaced inflation
- Mortgage costs grew significantly for homeowners who moved
From 2021 through 2023, overall housing costs for homeowners with mortgages increased by 1.6 percent after adjusting for inflation.1 Mortgage principal and interest costs declined over that period, by a relatively modest 0.9 percent. Other housing costs, like property taxes, insurance, and maintenance, increased by 5.5 percent. Expenses rose more for movers who bought and moved into a home.
These findings from our analysis of the most recent American Housing Survey (AHS)2 data allow us to update our prior analysis of homeowner expenses. Understanding the details of Americans’ housing budgets helps us at the Federal Reserve Bank of Minneapolis better understand how the economy is working. Research like this advances our mission to pursue an economy that works for all of us.
Mortgage expenses largely held steady
In 2023, 65.8 percent of U.S. households lived in a home they owned, up from 64.8 percent in 2021. They paid property tax and utility bills, bought property insurance, and covered maintenance expenses. Fifty-eight percent of homeowners also had a mortgage to pay.
Among mortgagors—that is, people who have mortgages on their homes—the average monthly principal and interest payment went down slightly, from $1,624 in 2021 to $1,610 in 2023, or a decline of $14 in real dollars. Why? This result likely reflects at least three trends.
First, mortgage rates were historically low in 2021. Homeowners benefited when they financed a new home or refinanced their current one. The number of people who refinanced their homes spiked in 2021 and then dropped steeply through 2022 and 2023 as interest rates rose.
Second, fewer people bought a different home or became homeowners. Fewer homeowners moved in 2023 than in any year on record. That all means a lot of mortgagors’ payments are still based on the low mortgage rates that were available when they purchased a home or refinanced in earlier years.
Finally, elevated inflation likely played a role. Unadjusted for inflation, the average monthly principal and interest payment in 2021 was $1,462. If it had risen at the same rate as other goods—about 12 percent from 2021 to 2023—then the average monthly principal and interest payment in 2023 would have been $1,644 instead of $1,610. Instead of rising over time, most mortgagors’ principal and interest costs are fixed. As other prices rose, these inflation-adjusted fixed costs became relatively less expensive even as the dollar amount was unchanged.
Other housing expenditures outpaced inflation
Although mortgagors spent slightly less on their mortgages in 2023, they paid more for housing overall. As shown in Figure 1, average monthly non-mortgage housing costs rose $56 from 2021 to 2023. The AHS measures spending on utilities, property taxes, property insurance, maintenance, and homeowners association fees. Altogether, mortgagors spent 1.6 percent more on housing after adjusting for inflation.
Expenditures could have outpaced inflation in two ways. Prices for certain goods or services might have gone up faster than general inflation. Consumption of or investment in those goods or services (or both consumption and investment) could have also increased.3
For example, by one measure, home maintenance prices increased by 12 percent from 2021 to 2023. That’s roughly in line with overall inflation. Meanwhile, mortgagors’ maintenance spending increased by 15 percentage points more than inflation.
What explains the gap between inflation, or the increase in prices, and nominal spending increases, or homeowners’ actual expenditures? Most likely, mortgagors’ consumption of (and investment in) maintenance goods and services increased. This happens when people buy more goods or services. It also happens when people buy higher-quality, or more expensive, goods or services.
For example, if a homeowner paints more rooms in 2023 than in 2021, that purchase of more painting supplies would be an increase in real spending. If a homeowner painted the same number of rooms in 2023 as they did in 2021 but used more expensive paints and brushes, that would be a real spending increase, too. If, instead of repainting some rooms, they spent more money to get a new roof, that’s a third type of increase.
The AHS can’t tell us which types of spending drove higher maintenance spending. But the data do suggest that inflation alone doesn’t explain the increase in non-mortgage expenditures.
Other components of housing costs are even harder to tie directly to inflation. Consider property taxes. The effective property tax rate measures how much a homeowner pays in property taxes relative to the value of their property. Growth in property values outpaced inflation by 6 percentage points from 2021 through 2023. If effective property tax rates had held steady, homeowners should have seen property taxes increase at a similar rate to property values. Instead, the amount they paid in property taxes declined slightly. After adjusting for inflation, the average property tax bill fell by about $30, or 0.6 percent, per year.
Changes in housing expenditures varied across homeowner groups
Different groups of homeowners saw notably different changes in their housing costs, as shown in Figure 2. Consider the 42 percent of homeowners without a mortgage. Overall, these homeowners spent an average of 5.2 percent more on housing expenses in 2023 than in 2021. In dollar terms, that’s $46 a month, or $552 a year.
| Category of homeowner | Total housing spending ($) | Change (%) | |
|---|---|---|---|
| 2021 | 2023 | ||
| All | 1,918 | 1,960 | 2.1 |
| Mortgagors | 2,640 | 2,682 | 1.6 |
| Lower- and moderate-income | 2,143 | 2,108 | -1.6 |
| Non-lower- and non-moderate income | 2,829 | 2,925 | 3.4 |
| Recent movers | 2,752 | 3,140 | 14.1 |
| Non-mortgagors | 901 | 947 | 5.2 |
Trends differed for lower- and moderate-income homeowners, whom we define as those making less than 80 percent of median family income in each year.4 Adjusted for inflation, these lower- and moderate-income mortgagors’ principal and interest payments decreased more than those of their higher-income peers. Their non-mortgage costs increased more quickly, but not enough to offset the decline in principal and interest. On balance, their overall homeownership costs declined by 1.6 percent. On average, these homeowners spent a total of $2,108 per month on housing in 2023.
The impact of moving on housing costs has grown
Rising mortgage rates increased costs for people who financed homes they newly purchased. In addition to higher interest rates, these movers faced rising home prices. By one estimate, the monthly cost for a hypothetical buyer to own and maintain the median-priced home in the United States rose from $2,040 in 2021 to $2,840 in 2023. Climbing mortgage interest rates accounted for much of the increase.
The combined increase in home prices and mortgage rates shows up in the AHS data when we examine recent movers. “Recent movers” are people who moved within the previous 24 months. They may have bought their first home or sold one home and moved into another. For example, a recent mover in the 2023 data is anyone who moved during the survey period in 2021, 2022, or 2023. Recent movers in the 2021 dataset would have moved during the survey period in 2019, 2020, or 2021.
Costs for recent movers with a mortgage increased significantly in 2023. Recent movers in the 2023 dataset paid 14.1 percent more for housing costs compared to recent movers in 2021. Costs increased 0.3 percent for 2021’s recent movers compared to 2019’s. In 2019, recent movers with a mortgage paid 1.7 percent more than in 2017.
Data have implications for household budgets and bank accounts
AHS data suggest that anyone interested in easing the burden of housing costs on household budgets should first pause to consider which costs are creating that burden in the first place. A single trend’s impact can vary across household groups in the housing market.
For example, higher home prices increased housing expenditures for recent movers. Higher home prices may be an obstacle for renters looking to become homeowners. Prices may impede young adults looking to leave shared living arrangements and form new households. In some cases, when the higher prices translate into higher property tax payments or insurance costs, price increases can challenge longer-term owners.
On the other hand, home price appreciation creates wealth for existing homeowners. Mortgagors’ median home equity increased from 48 percent of their homes’ values in 2021 to 54 percent in 2023. That’s partially because of a $15,000 average reduction in mortgage balances. But it’s also because home values rose. According to the AHS, homeowners’ median housing equity value went from $179,000 in 2019 to $254,000 in 2023. That’s a 42 percent increase in housing wealth.
Lower- and moderate-income homeowners, including those with and without a mortgage, experienced similar gains in their housing wealth. Their median home equity increased by $73,000, from $158,000 in 2019 to $231,000 in 2023. That’s a 46 percent increase in real terms. For households with incomes above 80 percent of median family income, median home equity increased by $82,000, from $193,000 to $275,000. Given that the median net worth of households whose incomes are among the lowest 40 percent of Americans is less than $40,000, growth in home equity plays a key role in wealth accumulation.
In short, there aren’t simple stories in today’s housing market. Mortgage costs, the largest housing expenditure for most homeowners, increased in line with inflation. But homeowners’ overall expenditures still grew. And while rising home prices are a barrier for some, for others they are a source of rapidly growing wealth.
Endnotes
1 Unless otherwise noted, all dollar amounts and percent changes in this article are adjusted for inflation and expressed in 2023 dollars.
2 The AHS is a biennial survey sponsored by the U.S. Department of Housing and Urban Development and conducted by the U.S. Census Bureau. Its survey panel consists of housing units, not households. In other words, every two years it surveys whoever is living in the residences that make up the panel.
3 In the National Income and Product Accounts, published by the U.S. Bureau of Economic Analysis, spending on home improvement can be categorized as consumption or investment, depending on the precise form it takes.
4 We set the income threshold for identifying lower- and moderate-income households each year at 80 percent of the national median family income, which in 2023 was $99,500 for metropolitan counties and $76,800 for nonmetropolitan counties.
