Cost of Buying an American Home Shatters All Previous Records

A 'For Sale' sign is posted in front of a home in San Anselmo, Calif., on March 22, 2023. Justin Sullivan/Getty Images

Americans now have to put up more money than ever to buy a home, with rising mortgage rates and expensive home prices continuing to push up housing costs.

“The median U.S. home-sale price hit a record $383,725 during the four weeks ending April 21, up 5.2 percent from a year earlier—one of the biggest jumps since October 2022,” said an April 25 Redfin press release, adding that buying a home now costs “more than ever.” Average weekly mortgage rates hit 7.1 percent as it became clear that the U.S. Federal Reserve would keep interest rates higher for a longer period. This is the highest weekly mortgage rate since November last year.

High home prices combined with elevated mortgage rates drove up the median monthly housing payment to a “record” $2,843—an increase of 13 percent yearly.

New listings are up 10.2 percent for the year. Despite the recent improvement in inventory, the total available homes for sale continue to remain low. Meanwhile, demand for homes remains steady despite mortgage rates exceeding 7 percent.

“My advice to sellers is to price your home fairly. Even though sellers are getting top dollar at the moment, they should price competitively to attract buyers from the start and avoid having to drop their price as stubbornly high mortgage rates eat into buying budgets,” said Redfin Economic Research lead Chen Zhao.

“My advice for serious buyers who can afford today’s costs is to shop for your dream home and accept that this year is probably not the time to find a dream deal. Price growth may cool slightly in the coming months if mortgage rates stay high or rates might fall slightly—but overall housing costs are likely to remain elevated for the foreseeable future.”

Amid high mortgage costs, people are opting to buy homes with cash. According to Redfin, 34.5 percent of homes bought in February were all-cash sales, up from 33.4 percent a year back. Others are opting to make a large enough downpayment to ease down the effects of high mortgage costs by reducing monthly payments as much as possible.

However, some buyers are not in a position to do either. This is especially true for first-time homebuyers as they do not have the equity that comes from the sale of a previous home.

“High mortgage rates are widening the wealth gap between people of different races, generations, and income levels … They’ve added fuel to the fire lit by surging home prices during the pandemic, creating a reality where in many places, wealthy Americans are the only ones who can afford to buy homes,” said Mr. Zhao.

“Meanwhile, people who are priced out of homeownership are missing out on a major wealth-building opportunity, which could have financial implications for their children and even their children’s children.”

Priced Out of the Market

An April 23 Redfin survey showed that 38 percent of current homeowners do not think they can afford to buy a home if they were purchasing today.

Almost three in five respondents have lived in their current home for at least 10 years while another 21 percent have been living in their present residence for at least five years. Over the last 10 years, the sales price of a median U.S. home has doubled, shooting up by 50 percent in the past five years alone.

“Americans who already own homes benefit from rising values and they can consider themselves lucky they broke into the housing market while they could still afford it,” said Redfin senior economist Elijah de la Campa.

“On the other hand, price appreciation makes the prospect of buying a new home daunting or even impossible for many people who want to move.”

U.S. citizens need to make more than $100,000 a year to buy a median-priced home, with the income needed to qualify to purchase a home jumping almost 50 percent over the past four years, according to a recent Bankrate analysis.

“Affordability is the biggest issue—finding a home that’s in your budget,” said Bankrate housing market analyst Jeff Ostrowski.

“The higher the price of a home, the harder it is to come up with the down payment or to qualify for the monthly payment … Home values are near record highs, and if you want a house, you have little choice but to pay a high price.”

According to an analysis by real estate marketplace Zillow, there are currently 550 American cities where the cost of a typical home is $1 million or more, up from 491 a year back.

California alone has 210 such “million-dollar” cities, which is more than the next five states in the list combined. New York came in second with 66 cities, New Jersey having 49, Florida 32, Massachusetts 31, and Colorado with 21 cities.

Housing costs may remain high as the possibility of mortgage rates declining significantly is fading due to elevated inflation and a booming economy.

“March inflation figures were very bad, which also means bad news for interest rates,” said Lawrence Yun, chief economist at the National Association of Realtors.