NEW ORLEANS >> If owning a home wasn’t already burdensome enough, Colorado has registered the biggest increase of any state when it comes to how much extra owners must set aside to cover insurance and property taxes.

Lenders typically require borrowers to forward money for those expenses each month, which they hold in “escrow” to cover future payments. Those escrow payments are rising at a much faster rate than core mortgage payments, and those increases hit existing homeowners, not just new buyers, hard.

Nationally, homeowners faced a 17% increase in the average escrow payment last year compared to this year, according to a study from Cotality, a real estate research firm formerly known as Core Logic.

Colorado led the country with a 31% increase. Other states with high increases include Louisiana at 28%, Wyoming at 26%, and Montana and Alabama at 24%.

“In markets like Colorado, for example, it is the top market, it’s not just insurance, but it’s taxes as well,” said Selma Hepp, chief economist with Cotality, who was speaking at the National Association of Real Estate Editors in New Orleans.

Colorado experienced widespread and dramatic increases in residential property values between mid-2020 and mid-2022, which resulted in nation-leading property tax increases that forced political leaders to try and soften the blow.

While the increases in the assessment cycle that followed have been much tamer, the higher costs are now baked in. Incomes, while rising, haven’t gone up enough to compensate.

On top of that, the state has experienced substantial increases in natural disaster claims, from large hailstorms to the late 2021 Marshall fire, which destroyed more than 1,000 homes and caused more than $500 million in damages, making it the most destructive in state history.

Higher escrow payments strain existing homeowners, leaving them more vulnerable if there is a downturn or other economic disruption, Hepp said. Although homeowners in Colorado have built a large amount of equity, and delinquencies are low, borrowers could face higher strains if their incomes are disrupted.

Higher escrow costs can also keep first-time buyers on the sidelines by reducing the amount they can borrow to purchase a property. That appears to be showing up in a dramatic increase in the number of unsold homes seen in metro Denver and across the state.

That said, higher home prices and mortgage rates, which are the key headwinds for first-time buyers, shouldn’t create as much friction in the months ahead, predicts Lawrence Yun, chief economist with the National Association of Realtors, who joined Hepp on the panel.

Rates for a 30-year mortgage should average around 6.4% through the remainder of the year before moving closer to 6.1% next year, Yun predicted.

He doesn’t forecast a recession, and expects the Federal Reserve, which held its benchmark rate steady on Wednesday, to signal cuts later in the year which should set the stage for lower mortgage rates.

Yun expects home prices to rise 3% this year and 4% next year on average, but markets like Colorado that saw the strongest job gains and in-migration coming out of the pandemic could see home prices decline.