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Home Buying in This Economy? Here Are 6 Key Stats on How Home Costs Compare to Inflation in 2023

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No one’s been able to escape the impacts of inflation, from watching the number skyrocket at the gas pump to paying an extra premium for a carton of eggs. But inflation is nothing compared to the rise of home prices, which jumped by 42% since the pandemic began in 2020.

Home Bay found U.S. home prices exceeded inflation in 2023, putting homeownership in jeopardy for Americans at the prime age for buying a home. Increasing interest rates and tighter lending requirements are making mortgages less affordable, and skyrocketing listing prices will pose challenges for first-time homebuyers. 

How would things be different if homeownership increased on pace with inflation? Are there any places where home prices are affordable, but still able to generate wealth? Here are 6 statistics that show the state of home buying and inflation in 2023.

1. Home Prices Have Increased Despite Inflation

Home prices have increased by 42% since 2020, while inflation has increased by 16%, according to Clever’s study of the cost of home prices and inflation in the U.S. That’s still a high increase for inflation, but high inflation usually drives down demand and lowers listing prices.

Inflation drives up some of the hidden costs that go into a listing price. The high gas prices in 2022, for example, made it more expensive to ship building materials and appliances. This along with lingering supply chain challenges from the pandemic led to a spike in housing prices as it became more difficult and expensive for developers to build new homes.

The demand for homes grew and stayed high from 2020 to 2022, outpacing the supply of new homes built. The Federal Reserve’s interest rate hikes made it more expensive for buyers to borrow large mortgages. Even though home buying slowed in 2022, home prices still outpaced inflation by 3.7%.

2. Home Prices Have Increased 294% Since 1988

If home prices rose on pace with inflation since 1988, the median home price would be a fraction of what it is now. Home prices in the U.S. have increased 294%, and millennials now face a home price-to-income ratio that’s 53% higher than it was for Baby Boomers when they were in their early 30s.

The current home price-to-income ratio for millennials in their early 30s is 6 to 1. An American millennial looking to purchase a home at the median home sale price of $433,100 in 2022 needs to make $166,577 to be in what experts consider a healthy home-price-to-income ratio. 

High home prices also mean an increase in the cost of additional fees like commissions for real estate brokers and agents. Some agents charge as much as 6% of the total listing price in commission, so the higher the home price, the higher the added cost of paying a realtor. Using a discount real estate broker can help reduce some of that outsized cost.

3. The Price of Goods in America Has Risen 78% Since 2000

Just about everything felt more expensive in 2022, but prices for consumer goods have increased steadily over the past two decades. The price of consumer goods has risen 78% since 2000. In 2022 alone, inflation rose 6.3%.

The past 22 years have seen a wide range of unprecedented economic events, including the Great Recession of 2008 and the COVID-19 pandemic. Even if the Federal Reserve’s interest rate hikes succeed in driving down consumer spending and demand, prices will still be higher than they were twenty years ago.

4. Florida Has the Top 3 Cities With the Largest Home Price Increases in 2022

Home prices have jumped in the Sunshine State, which is home to the three cities with the largest home price increases in 2022: Miami, Orlando, and Jacksonville. Home prices in Miami have gone up by 322.6% since 2000, which is more than any other major city in the same time frame. In 2022 alone, Miami home prices increased by 16%.

Orlando saw a 12.5% increase in home prices in 2022 and Jacksonville saw its home prices increase by 13.4% as Florida became a highly desirable place to live and work. Florida’s lower cost of living and lack of state income tax makes it friendly for remote workers and retirees alike, and Americans are willing to move long-distance to take advantage before home prices get too expensive.

5. San Francisco Is Home to the Most Expensive U.S. ZIP Code

The San Francisco Bay Area maintained its reputation as one of the most expensive metro areas in the U.S. Its 94027 ZIP code is the most expensive in the nation, lying between San Francisco and San Jose, just outside of Stanford University.

The Bay Area has been in demand since the early 2000s as tech companies took over San Francisco, gaining a reputation as a home for some of the highest earners in the country. The median home price increased by 300% between 2000 and 2022, going from $274,120 to $1,113,873 in just over two decades. In 2022, the typical home value in Atherton, Calif. is $7.3 million, beating out Beverly Hills by almost $2 million.

6. Only New Orleans and San Francisco Saw a Decline in Home Prices

Some metro areas experienced slight declines in home prices despite the economic climate. San Francisco, New Orleans, and Sacramento all saw median home prices decrease in 2022, according to Clever.

San Francisco is still expensive compared to most U.S. cities, with its typical home price in 2023 sitting around $1 million, but the city’s home prices declined by 2%. High inflation has been tough on California residents, who have faced some of the highest gas prices in the country. The Bay Area is also historically the home of the tech industry, which has been more open to remote work in the wake of the COVID-19 pandemic. These factors may have contributed to this slight decline as demand for housing in San Fransisco slows.

New Orleans, on the other hand, is known for its affordability. The Big Easy’s typical home price decreased by just 0.2% to $237,942, which is still well below the national average. Its risk of flooding and other extreme weather events makes New Orleans less desirable for buyers evaluating investments. 

Home Prices and Inflation Pose Challenge for Americans in 2023

Homeownership has long been a cornerstone of the American dream: a pathway to building wealth and achieving a desirable lifestyle. The substantial increase in home prices over the past 20 years has put that dream out of reach for many millennials in their prime home-buying years, at least for now. 

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