The Rule The Whole Thing Turns On
Insulation on the outside of the sheathing does something insulation in the cavity cannot. It keeps the sheathing warm.
That is the entire mechanism. Water condenses on the coldest surface it can reach, and in a wall that surface is the back face of the sheathing on a January night. Move enough R-value outside that face and it never gets cold enough for the moisture in your indoor air to condense on it. Move too little, and you have done something worse than nothing.
Why worse? Because foam also slows outward drying. Thin foam blocks the escape route without raising the temperature enough to stop the condensation forming in the first place. The wall is now both wet and sealed.
The building codes put arithmetic on this. Since the 2021 IBC and IRC, the vapour retarder tables tie the permitted interior class directly to how much continuous insulation sits outside. Climate zone 6 with a 2x6 wall lands near R-11.25 of exterior continuous insulation; the same zone with a 2x4 wall needs roughly R-7.5. Those are not comfort targets. They are the point at which the sheathing stays dry.
Fault One: Not Enough Continuous R-Value
The commonest version of this is a half-inch or one-inch board chosen because it was cheap, or because the window and door details only allowed for that much depth.
The symptom is delayed and indirect: musty smell in cold months, staining that appears on interior drywall in the second or third winter, sheathing that feels soft when someone finally opens a section for a new outlet. Nothing about it looks like a moisture problem until it clearly is one.
There is no clever workaround. Either the exterior layer meets the ratio for your zone and cavity, or the assembly is a slow failure with a nice energy bill for the first few years.
Fault Two: Two Vapour Barriers
Exterior foam is already a vapour retarder. If the inside of the wall also has polythene, the framing is sealed on both faces.
This is the same mistake as the basement wall that traps moisture, just rotated ninety degrees. The principle is identical: an assembly needs to be able to dry in at least one direction, and a wall with a barrier on each side can only dry by being demolished.
If you are adding exterior foam to an older house, find out what is behind the drywall before you start. Polythene from a 1990s renovation is common and needs to come out, or at least be slashed extensively, as part of the job.
Fault Three: No Drainage Plane
Foam boards are not a weather-resistive barrier by default. They become one only when the seams are taped correctly and the whole surface is detailed to shed water down and out, with flashing at every penetration.
Water always gets in. Wind-driven rain finds window heads, hose bibs, and the underside of trim. What matters is whether it has somewhere to go. Boards butted together and left untaped give it a route into the wall and no route back out, which is how you end up with rot at the base of a wall that is, on paper, well insulated.
Furring strips over the foam create a vented gap and make the whole thing far more forgiving. They also cost more and complicate the siding. This is the trade-off people quietly skip, and it is the one I would spend the money on.
Fault Four: Thermal Bridges Left In Place
Continuous means continuous. The reason exterior insulation outperforms the same R-value in the cavity is that it covers the studs, and studs are roughly a quarter of a typical framed wall by area.
Interrupt it and the advantage goes. Common interruptions: the rim joist band, corner framing, window and door bucks, and anywhere trim was fixed directly through to structure. A thermal camera on a cold morning finds these in about ten minutes, and they show up as clean vertical stripes exactly where the studs are.
The same reasoning applies inside the roof, which is why attic duct insulation treats code minimums as a floor rather than a target.
Fault Five: The Wall Stops At The Eaves
Right at the top of the wall, the insulation runs out. The top plate is there, the roof insulation has not yet reached depth, and cold air from the soffit vents washes straight across the join.
You feel it as a cold band along the perimeter of an upstairs ceiling. Sometimes there is mould in the corner where the ceiling meets the outside wall, and the owner assumes it is a roof leak. It is a gap the width of your hand.
Rafter baffles hold the vent path open while letting the insulation come fully over the plate. It is the cheapest item on this list and the one that most reliably gets missed, because it is finished work by the time anyone thinks about it.
Where To Start
Look at the outside first, then the thermal image, then the smell. Water stains low on the wall mean drainage. Stripes mean bridging. Musty with nothing visible means vapour, and vapour problems are the ones that need the ratio checked before anything else is touched.
And if the honest answer is that the foam is too thin for the climate zone, resist the urge to add a bit more insulation somewhere else to compensate. That is not how this works. The sheathing does not care about your average wall performance. It cares about its own temperature in January.
My own view, and I know it's unwelcome: a wall that can't get the full continuous R-value the ratio demands is better left alone this year than done thinly this month. I'd rather pay another winter of heating bills than seal water into sheathing I won't see again for a decade.