The American dream can keep you up at night.
Beyond anxiety that your biggest investment may be losing value while you sleep, owning a home presents a host of challenges previous generations never pondered. From a rising potential for extreme weather to fears about toxic building materials, there's plenty to disturb the modern homeowner's rest.
"When you add in the economic dimension of homeownership, there are certainly more things to worry about today than at really any time in the post-Depression era," said Robert Hartwig III, president of the Insurance Information Institute. "If there were an index of uncertainty associated with homeownership, for people who have owned their homes for the last number of years, I would say it is at an apex."
Rising storm threats
Few homebuyers would imagine when they're signing a mortgage that climate change might threaten their personal castle.
But the increasing frequency and ferocity of storms and floods makes that a growing possibility. In the 1990s, there was an annual average of 46 federally declared disasters. That rose to 56 in the next decade. Last year, there were 81 disasters declared, and so far this year, 46.
As Allstate CEO Thomas Wilson made clear recently, insurance companies expect even more severe weather to come. "We are acting and running our homeowners' business as if that is a permanent change, as opposed to an anomaly," he said.
Insurance companies paid out record amounts for claims related to storms and tornadoes in each of the last three years, and 2011 is expected to bring another high. Claims in the last three months alone are forecast to top $15 billion, more than twice the amount in the same period last year.
Higher claims mean higher premiums. Homeowners insurance rates rose between 4 percent and 5 percent in 2010, estimates Hartwig. That's compared with a more typical 2.2 percent in 2009.
As storm risks push rates higher, homeowners must make sure they understand their policies. They need to be aware of what coverage they carry, and any limitations, before it's time to make a claim. For instance, most lenders require insurance coverage for the amount of the mortgage, but that may not be enough to meet the expense of replacing a home and its contents.
One strategy for managing your insurance costs is to increase the amount of the deductible. That's a better option than carrying a policy that doesn't cover replacement.
And as this week's floods in North Dakota and Nebraska show, even when a home is not in a high risk flood zone, it often makes sense to buy a policy through the National Flood Insurance Program. Generally homeowner's insurance doesn't protect against losses from heavy rains, overflowing rivers or the coastal flooding caused by a hurricane.
Growing toxic hazards
Water damage can lead to any number of headaches for homeowners, but few are as upsetting as the sight of mold. Unchecked, mold can spread throughout a house and cause health issues, such as breathing problems.
The trouble is that homes offer a perfect environment for mold to grow. Paint, wood and other building materials can all provide nutrition for various types of mold.
"We build homes with their food," said Curtis Niles, owner of Armored Home Inspections in Upper Darby, Pa., and president of the National Association of Home Inspectors. In small amounts, mold can be removed by with bleach and water, but larger problems may require calling in the pros. Remediation can cost tens of thousands of dollars in the case of widespread infestation.
"The key is to correct the reason why it's there in the first place, which is moisture," Niles said. The source could be a leak in a wall or foundation, or high humidity in areas like finished basements.
Niles said he's seen big mold problems in foreclosed homes that stand vacant and sealed for long periods. With short sales and foreclosed homes, which are often in disrepair, accounting for as many as one-third of home sales, it's not an issue to ignore.
Although some mold costs are typically covered by homeowners' insurance — say if it stems from water seeping in from a damaged roof — most states allow policies to exclude mold attributed to a lack of maintenance. That came about after a spike in claims about 10 years ago.
Water seepage has also become a concern in recent years for homes with stucco or stone exteriors that were applied incorrectly. In the worse cases, water can seep behind the facade and wood can rot. Niles said homes built like this have a major problem that comes with a hefty price tag for repair — and it's also usually not covered by insurance.
"A homeowner's insurance policy is not a warranty policy," Hartwig said.
Not all environmental hazards are new: Plenty of older homes in the U.S. still contain asbestos and lead paint. Asbestos may be found in products, such as flooring, roof tiles, shingles, duct work or insulation installed before the link was made between the material and deadly lung diseases.
Asbestos is dangerous only when the fibers become airborne, so there's often no need to act if the home is in good condition. The issue becomes more complicated if you're remodeling and the material is likely to be disturbed. That may require hiring a contractor with specialized training and, in some states, licenses to remove it.
Facing few choices
Renovating a house these days often means going green. Homeowners are choosing eco-friendly projects, like adding solar panels or converting to gas from oil heat, in a nod toward reducing their home's impact on the environment.
Although it may take nearly a decade to recoup the $20,000 to $30,000 expense of installing solar panels, such measures can make a home more appealing to a buyer.
"A green home is more efficient and it's going to cost you less to maintain," said Jim Hamilton, a broker with Alain Pinel Realtors in Los Gatos, Calif. Hamilton has customers looking for homes with solar panels, because they often generate enough electricity that it can be sold back to the local provider. One recently sold home had electric bills of just $1 a month.
Some costs can also be offset using federal tax credits and often state or local tax breaks. Visit energysavers.gov for details.
Another move that can make smart financial sense is to upgrade a home's wiring to provide more electric capacity and to accommodate digital age electronics. Prices for such a project can range widely, from a few thousand dollars to $15,000 or more, depending on the home's age and the difficulty of the project.
But Hamilton said modern wiring can be a selling point: "Electricity demands for the components of a house are much higher than even 10 years ago."
It's harder to predict when other renovation choices will add to the resale value of a home. Remodeling may be a logical option for homeowners who have found it difficult to sell, and instead opt to stay put.
But a word of caution.
"Don't overspend for the neighborhood you're in," Hamilton warned. The biggest return is usually from improvements made to the exterior that enhance a house's curb appeal. "Make your house unique, but not odd."
Still, with the median amount of time for owning a home about 12 years, decisions about improvements are not always about resale value. "A big part of homeownership isn't if you're going to get money out of it," Hamilton said. "It's about enjoying living there."