For most people, housing costs are the largest expense they bear. This article will take a detailed look at Vermont’s housing costs for homeowners. The next article will take a look at Vermont’s rental market.
The US Census Bureau keeps track of housing costs. “Selected Monthly Owner Costs” include mortgage payments, property taxes, home insurance, utilities (electric, gas, water & sewer) and fuel. As of 2016, the Census Bureau’s 5-year estimate of Selected Monthly Homeowner Costs for Vermont was $646 excluding a mortgage and $1,533 with the mortgage included. For the US as a whole, these numbers were lower at $462 and $1,491, respectively. A more detailed look at the key components of housing costs is provided below.
As discussed in the prior article, property tax rates in Vermont increased by 29% over the ten-year period ended in 2017. In 2017, the average effective tax rate for a homestead residence was 2.08%. For a $200,000 home, this means an annual tax bill of $4,160, representing an increase of $940 since 2008.
The one bright spot of the Great Recession has been historically low interest rates. According to the Federal Reserve Bank of St. Louis, average 30-year mortgage rates declined from 6.24% in 2008 to a low of 3.32% in 2012, representing a whopping 47% decline. Mortgage rates remained in the 3.5% area for several years, but have begun to increase over the last 18 months. As of November 2018, the average 30-year mortgage rate was up to 4.81%, still well below 2008 levels.
For many Vermonters who bought homes or refinanced mortgages after 2008 the reduction in mortgage interest rates would have helped to offset the increase in property taxes.
Vermont has some of the lowest home insurance rates in the country. It would appear that the risk of hurricanes, tornadoes, fires and floods is less than most other states. According to Insurance.Com, the average annual cost to insure a $200,000 dwelling with a $1,000 deductible and $100,000 of liability coverage is $589. This compares to the US average of $1,228.
The cost of home insurance in Vermont appears to have been quite stable over the years. The author’s home insurance costs have increased only 0.58% per year over the last ten years.
Home Heating and Electricity
Given long and cold winters, heating costs must be a factor in Vermont’s higher Selected Monthly Owner Costs. Luckily, many fuel costs have trended down in price over the last ten years, as the chart below illustrates.
Vermont Fuel Costs ($/unit)
|Fuel||January 2008||January 2016||November 2018|
|Number 2 Fuel Oil||3.30||2.01||3.02|
Source: Department of Public Service, Vermont Fuel Price Report. The November 2018 Natural Gas and Electricity prices are from Vermont Gas and Green Mountain Power, respectively
All the petroleum related fuels experienced sharp price declines through to 2016: as much as 39% in the case of fuel oil. Wood and electricity prices increased at a steady pace over the period. Since 2016, fuel prices have begun to move upward and are now in line with 2008 levels once again.
Very recently, the Vermont State legislature has voted to double heating fuel taxes to fund an expanded weatherization program. The majority supporting this measure was not particularly strong, so it remains unclear if this legislation will ultimately be enacted.
Water & Sewer Costs
Vermonters fall in two camps when it comes to water and sewer. Many live outside of municipal water systems and have their own wells or springs and septic systems. In the absence of extraordinary problems, their annual operating costs for water and sewer will be quite modest.
For those Vermonters living within municipal systems, the annual cost of water and sewer varies widely and can be quite expensive. In a 2016 report prepared for the Vermont Legislature, the average monthly cost of municipal water and sewer charges in Vermont was estimated to be $165. The range of costs was very wide: some towns were below $80 and some above $200. This report was based on 2015 rates, so these costs have all likely increased in the interim.
Total Housing Costs
Using the information provided above, the table below estimates the total housing costs for a home valued at $200,000 with oil heat:
Estimated Housing Costs in Vermont
|Cost||Assumptions||Annual Cost ($)||Monthly cost ($)||Information Source|
|Property Tax||Average rate of 2.08%||4,160||347||Dept. of Taxes|
|Home Insurance||Average cost for a $200,000 dwelling||589||49||Insurance.Com|
|Electricity||Average monthly bill in Vermont||1,152||96||US Energy Info Agency|
|Fuel Oil||Vermont average use of 700 gallons @ $3.02||2,114||176||Energy Co-Op Vermont|
|Water & Sewer||Average monthly cost of $165||1,980||165||Legislative Report|
|Mortgage||$160,000 30-year @ 3.75%||8,974||748||Informed Vermonter assumption|
The actual costs incurred by individual homeowners will no doubt vary widely from those in the chart above. However, these estimated average costs are very much in line with the US Census Bureau estimates outlined at the beginning of this article.
There are, of course, other costs faced by homeowners. As a rule of thumb, repair and maintenance costs are estimated to be 1% of the home value annually. This alone would add $2,000 to the estimate above. There are also lawns, gardens, lawnmowers, snow blowers, plows, termites and cluster flies that all need to be added to the equation.
According to the US Census Bureau, the median home value in Vermont is $218,900 and the median household income is $56,104. Excluding the cost of a mortgage, and depending on a home’s water supply, the annual cost of home ownership looks to be somewhere between 14% and 18% of median household income. If the cost of a mortgage in included, which would be the case for most homeowners, the total cost of home ownership is in the range of 30% to 34% of median household income.