Home Values Down Across U.S. But Not Rebuilding Costs

Across America, home sales and values are down. But the costs to repair and rebuild homes have not followed. Rising reconstruction prices are contrary to the economic news of recent months and perhaps contrary to consumers’ expectations that lower home values should mean lower homeowners coverage amounts. Nearly one in four households already have changed their insurance coverage in the past year to reduce costs, according to a survey by the Independent Insurance Agents & Brokers of America (the Big “I”) and local Trusted Choice member agencies.

Xactware Solutions Inc. provides computer software and information for professionals involved in estimating all phases of building and repair. Xactware’s cost-to-rebuild information is from copyrighted Xactware research and is based on regular surveys of thousands of suppliers across the U.S. and on analysis of nearly 10,000 actual claims estimates each day. Insurance Journal asked Xactware for current replacement cost data on the 10 states hardest hit by declines in home values, as indentified by Zillow.com. (See chart)

In this environment, homeowners may need to be reminded that insurance is meant to “make whole” the policyholder after loss or damage to a home. In the case of rebuilding a home, “making whole” means rebuilding the same or similar structure.

When a home is damaged or destroyed, there are several issues that factor into its repair or replacement cost. According to the Big “I”: debris must be removed and discarded; lumber, concrete and other building materials are in demand on the worldwide market, even if demand is slumping in the U.S; and building materials are purchased for just one home, not on a large-scale basis as for most housing developments. Also, homeowners want to get back into their home as quickly as possible, and speed drives up costs.