How Energy Bills Are Changing Homeownership Goals

Everything today seems to cost more than it did recently. That’s especially true considering lingering inflation concerns and on-again/off-again tariffs in the news. And it certainly applies to utility expenses, with many feeling the pinch from higher bills for electricity, gas, and water.

The experts agree that rising energy prices are impacting when and how people pursue homeownership nowadays, causing many to consider three particular tactics: delaying a purchase, downsizing to a more manageable residence, or ditching homeownership plans entirely.

This article explores each of these options through the prism of more costly utilities expected ahead.

In this article (Skip to...)

• Energy costs are on the rise
• Why are people pausing homeownership
• How buyers are adjusting expectations
• Why some are opting out of homeownership
• The bottom line

Energy costs are on the rise

Make no mistake: Powering, heating, and cooling a home and supplying it with water is getting more expensive.

According to recent projections and market analyses, electricity prices are set to continue their upward trend in 2025, alongside notable hikes in natural gas costs—the primary fuel for power generation.

These increases, paired with infrastructure challenges and climate-related grid instability in certain regions, are contributing to a growing financial burden for American families. Consider the following facts:

• The U.S. Energy Information Administration (EIA) projects residential electricity prices will rise by 2% in 2025 compared to 2024 (excluding inflation).

• Wholesale power prices are expected to average $40 per megawatt-hour (MWh) in 2025 — a 7% increase from 2024.

• From 2020 to 2024, average residential electricity rates rose by nearly 25%, going from 13.0¢ per kilowatt hour to 16.2¢ per kilowatt hour.

• Natural gas delivered to power plants is expected to cost $3.37 per million British thermal units in 2025 — a 24% rise from 2024.

• Between 2020 and 2024, natural gas prices increased by 35%, with the average cost per therm rising from $1.00 to $1.35.

• Water costs in urban areas are climbing by 3% to 4% annually, largely due to aging infrastructure and costly upgrades.

• The average monthly utility cost per U.S. household is $362, a 3% increase from a year earlier.

• When averaged across all U.S. households, the annual utility cost is $3,432.

• 79% of U.S. households with utility bills spend an average of $4,344 annually.

• U.S. households collectively spend $451 billion annually on utilities.

• Hawaii has the highest average monthly utility bill at $634, followed by Maine and Connecticut. Among cities, New York City leads with an average monthly bill of $626, followed by Milwaukee and Pittsburgh.

• On average, utility costs make up about 5% of consumers’ annual income.

“There are several key drivers behind these higher prices,” explains Nick Barber, co-founder of Prepaid Electricity. “First, the strain on infrastructure from aging power grids and higher energy consumption, particularly in severe weather, is making more costly upgrades – the costs for which are transferred to consumers. Secondly, natural gas prices have varied depending on international supply concerns as well as heightened export demand. Third, weather-related incidents like heat waves, droughts, and winter storms are stressing utility systems: forcing utilities to purchase electricity at pricey spot-market rates. Finally, the shift to renewable energy involves upfront infrastructure expenses that are handed down in increased rates.”

These rising costs are affecting not just day-to-day budgets but also major life decisions like buying a first or next home. The higher price tags on utilities are provoking Americans to postpone, scale down, or altogether abandon a home purchase.

“Energy bills eat into our disposable income. So there’s less available for savings, renovations, or mortgage flexibility,” Mike Roberts, co-founder of City Creek Mortgage, notes. “Americans are forced to scale down plans and instead think about smaller homes, fewer upgrades, or delaying big decisions entirely.”

Why many are pressing pause on homeownership

Truth is, people aren’t just comparing home prices anymore: they’re scrutinizing the long-term costs of powering, heating, and cooling these abodes.

“For many first-time buyers, energy costs have become a critical filter. A home with poor insulation or outdated systems might seem affordable upfront but becomes a financial burden quickly,” says Reagan Bonlie, founder of Nudge Money. “That’s leading some to postpone buying altogether.”

Personal finance expert Andrew Lokenauth agrees.

“I’d say 60% of my younger clients have delayed home purchases by two to three years,” he says. “Many of these folks factored high energy costs into their decisions.”

First-time buyer candidates, especially those who earn less, represent a strong contingent among those who are delaying partially due to costlier energy bills, says J. Keith Baker, a professor of banking and finance at Dallas College.

“Some home loan borrowers from lower-income brackets are having to look at the utility costs of a home and include this with their overall budgeting for homeownership,” Baker says. “Consider that some loans look closely at how a budget for a future homeowner is affordable as part of the application and underwriting process. Many local housing authorities and nonprofits, in fact, require a detailed budget as part of a homebuyer’s education course or financial counseling that must be completed.”

According to a Redfin survey, rising costs tied to President Trump's tariff policies (which are expected to increase utility costs) are making Americans hesitant to spend, with nearly 25% canceling plans for big purchases like homes or cars. Over half of those surveyed said they're less likely to make a major purchase this year, including 39% who feel strongly about holding off.

How buyers are adjusting their expectations

A larger property means bigger bills, so it’s no surprise to personal finance expert and Certified Public Accountant David Kindness that high utility costs are pushing buyers – especially first-timers – to think smaller.

“I’m seeing more people opt for homes around 1,200 square feet rather than 2,500. That alone may cut utility costs by 30% to 50%,” he points out.

Lokenauth mentions another one of his clients who was determined to claim a 3000-square-foot suburban home but pivoted to a 1,800-square-foot residence after carefully calculating potential utility costs.

“We determined that her monthly savings would be at least $400 by downsizing,” Lokenauth continues.

Bonlie notes that upsizing used to be aspirational, with more space and extra amenities prized highly.

“Now, it often means more square footage to heat, cool, and maintain. Downsizing is becoming a financial strategy, not just a lifestyle shift,” she adds.

The National Association of Home Builders’ current data backs up this trend. The organization reports that home buyers are shifting toward smaller living spaces, with the median home size falling to 2,150 square feet in 2024—the smallest in 15 years—after staying around 2,300 square feet from 2019 to 2022. Lot sizes are shrinking too, down roughly 1,000 square feet over the past decade and a half to an average of 8,400 square feet. At the same time, townhomes (typically smaller than single-family detached homes) are gaining popularity, now making up 17% of the single-family home market, up from just 10% in 2009.

Why some are opting out of homeownership

And then there are others who’ve decided to completely shelve their homebuying goal, often due to affordability issues and steeper costs, which pricier utility bills play a part in.

“In some regions, the math simply doesn’t add up anymore. Some families are choosing to rent long-term or invest elsewhere instead of buying a home,” Bonlie says.

Fresh Redfin data backs up this drift, finding that home sales are falling through at a growing rate, particularly in the Southeast. In January 2025, more than 41,000 U.S. home-purchase agreements were canceled—14.3% of all contracts signed that month. That’s an increase from 13.4% the previous year and marks the highest January cancellation rate in at least eight years.

“For some, the unpredictable nature of utility bills has caused frustration, leading them to abandon the idea of homeownership and opt for rental or communal living arrangements instead. These shifts illustrate the profound impact utility rates are having on long-term housing trends,” says George Carrillo, CEO of the Hispanic Construction Council.

The bottom line

Despite these concerning statistics and trends, the real estate market is far from collapsing, and plenty of buyer prospects continue to hunt for and purchase homes successfully. We just have to get used to the idea of homeownership evolving to prioritize efficiency, sustainability, and financial resilience – with energy costs becoming a greater consideration in this decision.

“The bright side is that there are more tools than ever before to control and lessen home energy expenses – from smart home technology to tax rebates for efficiency retrofits,” says Barber.

Additionally, buyers are thinking greener than ever before.

“Buyers are paying more attention to features like solar panels, energy-efficient appliances, and even climate in their chosen area. Homes with Energy Star appliances or solar setups can save over $100 a month in energy use, and that adds up fast when you’re managing a budget,” says Kindness.

For homeowners feeling stretched, a HELOC can provide breathing room if used carefully.

“You can tap your home equity and use the funds for things like energy improvements – better insulation, upgraded HVAC, and solar panels. These will cut your monthly costs and boost your home’s value,” Lokenauth points out.

Ultimately, these shifts are all about balancing upfront affordability with lower long-term operating costs – a shrewd refocus for many home shoppers today.

“We’re entering a new era of financial wellness, one where the cost of energy is a central player in housing decisions. People want homes that work for them, not against them, and that starts with affordability beyond the mortgage payment,” says Bonlie.