Despite low home prices in the Midwest and South, weather disasters adding additional costs
To find some housing affordability in a challenging market, young and first-time homebuyers are fleeing the coasts for the Midwest and South. However, an increase in severe weather in those areas, like hail and tornadoes, is adding hidden costs to those affordable homes.
Gen Z buyers are looking for more affordable housing options in states like Iowa, Ohio, Nebraska, Michigan, Arkansas, Alabama, Mississippi, and Kansas. Unfortunately, those are all states that have seen an uptick in violent thunderstorms.
Cotality released a report in May that discusses how Gen Z’s future may be costly despite cheap homes. Large hail events and violent tornadoes are putting a strain on insurance companies, which are passing on increased costs on to homeowners.
Molly Boesel (pictured top), senior economist at Cotality, wants to ensure that brokers and young buyers consider more than the mortgage payment when considering a new home.
“I think when you talk about the hidden costs, so many people just think about your monthly payment as your principal and interest,” Boesel told Mortgage Professional America. “So, if you can get a good interest rate and you can get a decent price on the property, if you can find a property you can afford, they get locked into that monthly payment.
“But then you've got insurance and taxes. Once you're locked into that monthly payment, those other two things can change. You have to really budget for the increases you might be seeing in insurance and taxes.”
Insurance costs continue to rise
Thanks to natural disasters nationwide, insurance costs are rising. They’re even rising in places not experiencing natural disasters, as insurance companies spread the risk out across their nationwide platform.
The wildfires in California from earlier this year has led to insurance companies increasing premiums in some of the states with more affordable housing, like Iowa, Boesel said.
“You know, the insurance companies have to make up that somewhere,” she said. “They’re not making up the full cost of the increase for the California people on Iowa, but some of it definitely will be pushed that direction. “
The website Insurify released a study showing insurance rates in Iowa were expected to increase by 19% in 2025. Other states in the Midwest and South expected to see double-digit increases are Louisiana (27%), Minnesota (15%), Arkansas (13%), Illinois (10%), Kentucky (10%), and Nebraska (10%).
Cotality’s report lists the metro areas with the largest percentage of Gen Z home purchase applicants, led by Des Moines/West Des Moines, Iowa, with 21%. Omaha, Nebraska and Council Bluffs, Iowa, were second at 21%. The Youngstown/Warren/Boardman, Ohio market was third at 20% but had the lowest median home price of the markets listed at $136,040.
Hail damage caused much of the insurance strain in the Midwest. Nebraska and Kansas both saw a surge in households impacted by 2-inch hailstones. In 2024, Nebraska had nearly 70,000 homes impacted, while Kansas had just over 31,000 homes affected.
“Where Gen Z wants to live is different from where they can actually afford to buy,” Boesel said. “Right now, affordability points them toward the Midwest and the South, which also happen to be regions with higher exposure to natural disasters.”
Despite the rise of AI tools from companies like UWM and Rocket, Bruce Gehrke of JD Power emphasizes that younger, digitally native borrowers are often seeking personal interaction when AI falls short.https://t.co/hBRxiJYl3o
— Mortgage Professional America Magazine (@MPAMagazineUS) May 24, 2025
And while the Cotality report focuses on hail damage, it has already been an above-normal season for tornadoes. Daniel Chavas, associate professor of atmospheric science at Purdue University, published a report on The Conversation that said the US had 960 tornadoes this year through May 22, 300 more than the 15-year average of that same time period.
Pricing in the risk
The other concerning thing about Chavas’ report is a trend showing an eastward shift of “Tornado Alley,” or the historical area most affected by tornadoes. The area is moving toward the area cited in the Cotality report: toward Arkansas, Missouri, Illinois, Indiana, Kentucky, and Tennessee.
Boesel said Gen Z and first-time homebuyers should factor in the risk of the area they are moving to when they are considering cheaper housing.
“You’ve got to look at the risks,” she said. “You have to look at where tornadoes have occurred historically. You’ve got to take that into account and not skimp on insurance coverage. At the same time, they have to make sure they can afford it in their monthly payments.”
While storms worsen, Boesel hopes the largest increases in insurance premiums are in the past, and future increases will be more measured to allow younger homebuyers to budget for those expenses.
“Insurance has gone up a lot in the past few years,” Boesel said. “It does seem like those year-to-year increases are slowing. I don't know if you're going to see a doubling of insurance in the next couple of years. Hopefully, with the younger buyers coming in, insurance may have already made that large increase, and they might only need to budget for an extra 5% to 10%.
“I don’t think you’re going to see those large jumps anymore. While the entry point is pretty expensive for the first-time homebuyer, they may have come in at a good point.”
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