Top 3 Trends that Can Affect Residential Property Valuations

September 4, 2015

This post is part of a series sponsored by CoreLogic.

Accurate property valuation is critical to insurers as well as homeowners. In the event that a property is undervalued, insurers lose out on premium revenue while the homeowner risks not having enough coverage in the event of a total loss. On the other hand, if a property is overvalued, insurers risk losing worthy customers when homeowners or an independent agent shops for lower premiums from carriers who have access to more accurate and current property valuations.

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Top trends that can affect residential property valuations include:

  1. More homeowners are choosing to remodel instead of move: According to a 2015 Houzz®[1] survey that included 170,000 U.S. respondents, more homeowners are choosing to upgrade and remodel instead of purchasing another home. Interestingly, of those surveyed, discretionary renovations exceed many required or necessary projects. For example, nearly two times the surveyed homeowners are more likely to remodel a kitchen or upgrade home automation systems and smart home technology then replace aging elements such as roofs.

The drivers for remodeling versus buying vary according to age group and income. More than half of the survey’s respondents age 60 or over say they plan to age in place—and with the time and money to finally renovate as well as the need to modify for age restrictions, these Baby Boomers are investing heavily in their existing homes.

  1. More customers are choosing to rent instead of buy: The most recent Harvard University®[2] housing report “The State of the Nation’s Housing 2015” states that Q1 2015 homeownership rates are at just 63.7 percent—a 20-year low. Meanwhile, the 2014 rental market, according to the same report, rose to a 20-year high of 3.5 percent, marking the 10th consecutive year of robust rental growth.


For starters, many Millennials have become disillusioned with homeownership and the traditional conventions assigned to the white picket fence. Other factors such as student debt, flexibility, work/life balance and social causes like being eco-friendly have trumped the American, big-house dream and the suburban materialism of their parents’ generation.

Then there are families who lost their homes during the economic downturn. Faced with poor credit and diminished financial resources—yet entrenched in selected school districts and preferring to maintain as much of their lifestyle as possible—these families are preferring to rent single family homes or luxury apartments and condominiums.

Finally, there are empty nesters who are tired of being tied to a house that is now too large for their needs and the basic maintenance and care that goes along with it. They are increasingly downsizing to achieve greater financial and personal freedom.

  1. Reconstruction building and labor costs are on the rise: An improved economy as well as the basic principle of “supply and demand” has resulted in reconstruction cost increases across the U.S. According to a CoreLogic® analysis of building cost data:
  • Across the U.S., labor rates are increasing by 1.89 percent with all trades consistently increasing anywhere from 1.5 to 2.0 percent. Top moving trades are carpenter, electrician, roofer and tile setter.
  • Largest labor increases are occurring in Wyoming, Virginia, Utah, Texas, South Carolina, New Jersey, North Dakota, Idaho, California and Arizona.
  • Material costs from last year increased 1.1 percent, although January saw a jump to 2.1 percent. The top material increases were drywall, lumber, paint, and ready mix. Plywood showed a double digit increase for the year.
  • The national average for increased reconstruction costs is 1.3 percent; 1.8 percent for total reconstruction costs with 0.6 percent coming from an increase in square footage.

Without the right information about home renovations, renters, and current reconstruction costs, the implications of these trends on insurers could be significant. Unless insurers can detect property changes—such as major system, smart home features or other property improvements— they’ll be unable to match homeowners with the right products and therefore risk premium leakage.

Traditionally, because renter premiums are typically much lower than those of homeowners, the trend of renting versus buying highlights the importance of anticipating the insurance needs of renters. An example of this is with the increased complexity, income and specialized needs of today’s renter comes the potential need for increased contents coverages; whether for millennials with expensive computer equipment or someone who downsized from a single family house into an apartment. By understanding the trends, demographics and rental history of renters, insurers will be better prepared to underwrite renter’s policies.

Data driven-insight gives underwriters the tools needed to keep homeowners and renters happy and the company’s bottom line healthy. Risk managers have access to analytics and professionals that can help them better understand agent behavior, monitor property performance, as well as competitively compare key performance indicators.

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[1] This is not a trademark of CoreLogic, but of the entity.

[2] This is not a trademark of CoreLogic, but of the entity.

Topics Carriers Trends Property Homeowners

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