It's a great time to be in the housing market.
Select cities and towns across the country have experienced a real estate revitalization not seen in a long time.
U.S. purchases of new homes unexpectedly advanced last month, reaching the strongest pace in a decade. For homeowners residing in these real estate hotspots, this spike can cause their home value to rise as a result.
Laura Adams, senior insurance analyst at insuranceQuotes, provided the following insights for homeowners' debating between their options.
Home value fluctuation and what happens as a result
Many factors can cause home value to increase, says Adams, especially when new services and businesses come to a geographic area. The arrival of shopping centers, hospitals, parks and so on are prime examples. Economic indicators, such as low unemployment, high-income growth and low-interest rates allow consumers to spend more on housing, which increases real estate prices. Likewise, the opposite of these factors typically causes home values to go down.
Whether homeowners should adjust the value of their home insurance depends on why the value has changed. Adams says if the market value of a home increases due to demand or strong economic factors, homeowners typically don't need to adjust it any further. Put simply: Home value and home insurance coverage are not directly related. Your coverage on a home should equal the cost to rebuild it.
When you should increase your home insurance
Like many rules of thumb, there are exceptions. In the case, it has to do with construction costs.
If homeowners are planning a major upgrade or addition to their home, such as electrical or plumbing systems, or a kitchen remodel, be sure to let your insurance company or agent know. These types of projects typically add market value to your home and increase rebuilding costs, which means you may need to increase the insurance coverage on your dwelling.
Otherwise, Adams says, unless construction costs rise in a booming real estate market, there may not be a reason to increase your home insurance coverage.
Most homeowners are not aware that they determine how much insurance coverage they need for their homes and believe an insurer will make a recommendation. When you're unsure about how much home insurance you need, hiring a licensed property appraiser for an evaluation can help because they factor in market value, construction value and investment value. After that, it's a good idea to reevaluate your insurance needs each year to make sure you aren't over- or under-insured by comparing rates and talking to an insured.
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