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Replacement Cost vs. Market Value: What's the Difference?

If you were asked to describe the state of the housing market over the past few years, it could be summarized in one word: unpredictable.

At the start of the COVID-19 pandemic, many experts predicted a looming housing crash. But instead of heading into a real estate meltdown, U.S. home prices increased an astounding 37 percent in the two years between March 2020 and March 2022.

In fact, a recent study from Moody’s Analytics found home prices are currently “overvalued” by nearly 25 percent. With this massive fluctuation in real estate values, you may be wondering if your homeowners insurance is still providing the right level of protection.

The answer, of course, will depend on your specific homeowners policy. But there’s one factor that can make a big difference in the event of a major claim — whether your home is insured using market value or replacement cost.

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