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The Average Home Price in America

The Average Home Price in America

The average home price in America will likely surprise you. Prices have increased drastically over the last couple of years, with no slowing in sight. While the higher prices and interest rates seem to push buyers away, there are several ways to ensure you can still afford a home.

The pandemic changed how we do many things today and the prices we’re used to paying, but with a few simple steps, you, too, can afford the home of your dreams.

What’s the Average Home Price in 2022?

The average home price in the US in 2022 is $542,900, according to the Federal Reserve Bank of St. Louis. In addition, the median home price in the US is $398,500, which makes the median income required to buy a home $88,300, almost $40,000 more than before the pandemic started.

Why is the Average Home Price Increasing?

The pandemic has increased the average home price over the last couple of years. 

Because millions of people were stuck at home, working remotely, and looking for ways to have more room and more freedom, they moved. Many moved to remote areas of the country or away from crowded city life. Millions of people migrated to places they’ve always wanted to live once their jobs became remote and they could work from anywhere.

Because there were few places to spend money during the heart of the pandemic, many people focused their spending on housing, including millennials. 

The higher demand drove up prices, and they have yet to come down. So while they haven’t increased as drastically as they did from 2021 to 2022, they are still on the upswing.

How Much did Home Prices Increase in 2022?

According to Zillow data, the US saw a 30% increase in home prices from 2020 to 2022. While appreciation is normal since the market has increased annually since 1980, the price increases we’ve seen over the last two years are by far the largest.

What’s the Typical Home Price in the US?

According to the Zillow Home Value Index, the average home in America sold for $357,589. With a 5% down payment at 6.7% interest, the typical mortgage payment is 30% of the median income required to own a home today.

Which State has the Highest Average Home Price?

While the country’s average home price is $542,900, some states have a much higher home price. Hawaii takes the cake with the highest average home price of over $1 million. Washington and Massachusetts are the next most costly places to live, with the average home prices near $650,000.

How to Afford the Higher Home Price

So now the question for most homebuyers is how do you afford the higher prices? With prices increasing so rapidly and mortgage rates rising too, how do you increase your chances of loan approval?

Increase your Credit Score

Your credit score is the first thing lenders consider. They want to know that you’re financially responsible.

Most lenders look for credit scores higher than the minimum required for each loan program. Credit scores in the 700s are ideal, but any credit score over 660 is usually considered good for mortgage financing.

If you have a below-average credit score, consider fixing any of the following issues:

  • Bring late payments current – Your payment history is the most significant part of your credit score. So bring all payments current and keep making your payments on time.
  • Pay down debt – Your credit utilization rate is the next largest part of your credit score. Therefore, keep your debts at 30% or less of your credit line to maximize your credit score.
  • Take care of collections – If you have any collections or other negative credit events, take care of them.

Save a Large Down Payment

A 3% – 5% down payment might not cut it with higher home prices. While it’s all the loan programs require, that leaves you with a hefty mortgage payment that’s hard to afford and makes your debt-to-income ratio too high.

Try saving at least 20% to avoid Private Mortgage Insurance, or get as close as possible to a 20% down payment to reduce how much you must borrow.

Work with a Mortgage Broker

You must shop around for the best deal when interest rates are high. Rather than doing it yourself, work with a mortgage broker like Jonathan Torres and Torres Mortgage Team. They can help you shop around with different lenders with one application and credit file.

Your only job is to compare the offers provided and decide which loan is the most affordable.

Choose the Right Loan Term

Don’t assume the 30-year fixed-rate mortgage is your only option. Instead, look at all options and decide which makes the most financial sense.

For example, consider an ARM if you need a lower interest rate right now. You’ll pay a lower interest rate for a couple of years, and then the rate will adjust. Hopefully, rates will decrease by that time, and it will be easier to afford the market rates.

You may also consider shorter terms. While the payment will be higher, you’ll pay less interest over the loan’s term and own your home faster.

Final Thoughts

Home prices are rising, but that’s no reason to avoid considering buying a home. The key is to know what you can afford and to maximize your chances of a lower interest rate.

At Jonathan Torres and Torres Mortgage Team, we can help you find the right option by shopping around. We’ll present you with the best options available given your circumstances and help you decide which works best for your situation.

Contact us today to get started!

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