🏚 Millennial Housing Woes Remain 🏚
Inflation isn’t taking it easy on Americans at prime home-buying age. Spending $100,000 on a home in January 2020 would equate to spending $142,249 on a home today.
Inflation vs. Home Prices: Historical Analysis | 2022 at a Glance | Millennials Still Worse off Than Boomers | Housing Price Increases by Metro | Smallest Home Price Increases, Ranked | Biggest Home Price Increases, Ranked | Most Expensive ZIP Codes | FAQ
For the past few months, American home prices have steadily declined. Despite inflation finally cooling, Americans are still stressed about their finances. We’ve found that 73% of Americans experience stress and anxiety over money.
Recognizing that average Americans can do very little to influence their cost of living, it is more important than ever to understand the relationship between inflation and home prices.
The value of homes has increased exponentially over the past three years as demand outpaced supply. As a result, homeowners were in a great position to gain equity as prices inflated over time.
However, inflation has also made it difficult for potential buyers to afford homeownership as lenders have increased mortgage rates and tightened lending standards. As of date, the average national mortgage rate is 6.97% — compared to 3.58% in March 2021.
In this study, we analyze how inflation and home prices have increased over the decades, taking a particularly close look at the past year. We observed that, overall, home prices have actually outpaced the inflation rate. But at the start of 2023, historically expensive ZIP codes are actually decreasing in cost as buyers back away from inflation-boosted home prices.
We used data from the St. Louis Federal Reserve, Zillow, the Board of Governors of the Federal Reserve System, and the U.S. Census Bureau to conduct our analysis. Keep reading to find out how home prices have outpaced inflation and if there’s any relief on the horizon for future home buyers.
Inflation vs. Home Price Stats 💸
- Home prices have increased 42% since 2020, while inflation has increased 16%. Jump to section👇
- Despite high inflation, home prices rose 10.3% in 2022, while inflation grew at a 6.3% pace.👇
- If home prices grew at the same rate as inflation since 1970, today’s median home price would be just $189,527. Instead, home prices have increased far faster than inflation, soaring to $468,000.👇
- Overall prices of goods in America have risen 78% since 2000, while home prices have increased 147%.👇
- Housing prices have increased 294% since 1988. While the average baby boomer in their 30s paid $110,000 for a home, millennials in their 30s paid $433,100 in 2022.👇
- The cities with the lowest home price increases in the last year include San Francisco, New Orleans, and Sacramento, California.👇
- San Francisco and New Orleans actually saw a decrease in home prices in the last year — by 1.6% and 0.2%, respectively.👇
- The top cities with the highest home price increases are all in Florida — Miami, Jacksonville, Orlando, and Tampa.👇
- With an increase of 16%, Miami saw the biggest home price increase in the past year.👇
- The most expensive ZIP code in the country is 94027, located in the San Francisco metro area.👇
National Median Home Price Has Risen 42% Since January 2020
If you’ve felt like goods and services have gotten more expensive since the pandemic began, it’s not just in your head. Prices on all consumer goods have risen 16% since January 2020.
What’s more, prices for consumer goods have risen 693% since January 1970, according to the Consumer Price Index (CPI). The CPI measures the average change in prices consumers pay for goods over time. CPI is a good measurement of inflation because it tracks how the inflation rate affects Americans’ everyday lives.
The most sobering statistic is that home prices have continued to severely outpace inflation. Comparing January 1970 to June 2022, the last month for which we have full data, median home sale prices rose 1,858% while inflation, determined by the price of overall goods, rose “just” 677%.
To put a price tag on this: The median price of homes sold in America has risen from $23,900 in January 1970 to $468,000 now.
|💡 What if home prices matched inflation?|
To answer this question, we must assume that home prices grew at the same rate as inflation since 1970, instead of far faster. If true, today’s median home sale price would be just $189,527, rather than $468,000.
Home prices aren’t the only thing swiftly increasing over the past three years. From January 2020 to June 2022, median home sale prices rose 42% while the price of overall goods rose 14%. This means something that cost $3 in 2020 now costs $3.48, for example. To put things in perspective, the overall prices of goods in America have risen 78% since 2000.
How Home Prices Have Changed Across the Decades
|Year||Median U.S. Home Sale Price||Percent Increase in Home Sale Prices by 2023*||Overall Inflation|
Increase by 2023
*Prices are from Q1 of each designated year. Data for Median Home Sales Prices in the United States has not yet been provided for Q1 of 2023.
To understand just how expensive homes have become, let’s run through some comparisons on what our childhood homes would cost today.
Spending $100,000 on a home in January 1990 would equate to spending $377,724 on a home today. For everyday living costs, $100,000 spent on goods and services in 1990 would require $231,081 to get the same amount of goods today.
Spending $100,000 on a home in January 2020 would equate to spending $142,249 on a home today, while spending $100,000 on goods and services just three years ago would require $113,739 today.
Meanwhile, the average American didn’t receive a raise of $10,000 or more in the past three years, so this likely explains the amount of stress our country is experiencing.
Americans can find some solace in the fact that not all goods have risen in price like the currently infamous cartons of eggs. Some have actually declined. For example, in 1970, a 21-inch TV cost about $500 on average. Today, that would cost just a bit over $100 as manufacturing electronics becomes more efficient.
Inflation vs. Home Prices in 2022
Honing in on 2022, home prices rose 10.3% while inflation rose 6.3% — a four percentage point difference. Thankfully, home prices have started to decline month over month since Q4 2022. However, since home prices were already so high, these declines may not be enough for the average American to afford purchasing a new home. Note below, home prices continued to rise into Q3 2022.
In short, the increase in home prices outpaced inflation by 3.7% overall in 2022. However, between July 2022 and January 2023, inflation outpaced housing prices by 2.5%.
As the Federal Reserve interest rate changes, which has meant increases in the past year, so does inflation — and home prices along with it. Home prices declined nationally as the federal rate increased year over year, as consumers couldn’t afford the expensive borrowing costs.
|Date||Percentage Point Increase in the Federal Interest Rate||Cumulative Federal Interest Rate Changes||Monthly Increase in Typical Home Value||Monthly Increase in Inflation|
Marginal decreases in home prices aren’t that thrilling because the median home price remains expensive at $468,000. Additionally, a 6.3% inflation rate is still a sign to many cash-strapped Americans that the cost of living isn’t going down anytime soon.
Home prices remain so exorbitant because we still haven’t seen a significant increase in available inventory around the country. As people move around the country to improve their quality of life and find affordable places to live, they increase the demand for housing in new cities.
The continuing influence of COVID-19 on supply chains and staffing increased insurance costs, and higher interest rates also contribute to extreme home prices. To put it plainly — home sellers will price their homes competitively. If nearby homes are also expensive, they will price their home similarly to maximize the money they make on the sale.
Do Real Estate Commissions Matter?
In an expensive housing market where every dime counts, new home buyers are taking a harder look at real estate commission fees. Commission fees typically add up to 6% of the original home price. For a $468,000 house, that could be as much as $28,080 in additional expenses.
These commission fees can make home buyers feel discouraged because many have to readjust their budget after incorrectly gauging how much they’ll end up paying.
The national average real estate commission, which is split between the buying and selling agent, is 5.37%, according to our research. A year ago, in our same poll, the average real estate commission was 5.49%.
What does that mean in terms of real dollars? In June 2021, the median home sold for $411,200 with a 5.49% commission fee. The total commission was, thus, $22,574. In mid-2022, the median home sold for $468,000 with a 5.37% commission rate. The total commission was $25,131 — an 11.3% increase.
Inflation rose by 8.4% over that same period, meaning average real estate commission growth slightly outpaced inflation from 2021 to 2022, but not egregiously so. Although real estate commission fees are slightly decreasing, home buyers are still paying more in fees because of increasing home values.
Millennials Face 53% Higher Home-Price-to-Income Ratio Than Boomers Did in Their 30s
The American Dream has always been expensive, but because of accelerating home prices, millennials face a much bigger problem than boomers did at the same age.
The average home buyer should need 2.6 years to save for a down payment on a home and still have enough money for a monthly mortgage payment. This home-price-to-income ratio of 2.6 is considered healthy by financial experts.
In 1988, when the average boomer turned 33, the median home sale price was $110,000. The median household income was $27,230 without adjusting for inflation.
That’s a home-price-to-income ratio of 4. To afford a home with the suggested 2.6 ratio, a boomer turning 33 in 1988 would have needed a household income of just $42,308, 55% higher than the median household income at the time.
In 2022, when the average millennial turned 33, the median home sale price was $433,100, and the median household income without adjusting for inflation was $70,784. That’s a 6.1 ratio. To afford a home with the suggested 2.6 ratio, the average millennial would need a household income of $166,577, a salary 135% more than the median.
Compared to the average boomer entering their 30s, the average millennial entering their 30s faces a 53% higher home-price-to-income ratio. This is also 22 percentage points higher than last year’s difference (31%) when we compared the two generations. This increased ratio also comes at a time when more millennials are coping with student loan debt and high inflation.
|Median Income at 33 Years Old*||Median Home Price at 33 Years Old||Home-Price-to-Income Ratio||Income Needed to Afford a Home**|
**Based on the recommended home-price-to-income ratio of 2.6
For millennials, this may mean downsizing to save money. In 2022, 40% of millennials downsized when moving, whereas nearly half of boomers actually upsized. This includes millennials who already owned homes and had to downsize.
Millennials are also making major concessions during this period of high inflation and a struggling economy. About 27% of millennials report skipping meals, 21% report skipping doctor appointments, and 32% have had to dip into their emergency savings to make ends meet. Another 31% report taking on a second job to improve their financial standing.
Changes in Home Values for the 50 Biggest Metros in the U.S. (2000 to 2023)
Miami has seen a bigger increase in home prices than any other major city since 2000. With a 322.6% increase, Miami home prices have increased 4x as much as Cleveland — the city with the smallest increase since 2000 at just 81.2%.
Miami also saw the biggest increase in home prices in the past year with prices increasing by 16% in 2022 alone. The smallest increase in the U.S. was in Sacramento, California, with just a 0.7% increase.
Two major cities actually experienced home price decreases in the past year. Home values in San Francisco decreased 1.6%, and home values in New Orleans decreased 0.2%.
|City||Typical Home Value in 2000||Typical Home Value in 2022||Typical Home Value in 2023||% Increase 2000 to 2023||% Increase 2022 to 2023|
|San Francisco, CA||$274,120||$1,113,873||$1,096,477||300%||-1.6%|
|New Orleans, LA||$109,201||$238,291||$237,942||117.9%||-0.2%|
|Salt Lake City, UT||$170,262||$510,876||$523,590||207.5%||2.5%|
|San Jose, CA||$354,864||$1,343,798||$1,385,816||290.5%||3.1%|
|Los Angeles, CA||$216,288||$824,093||$855,851||295.7%||3.9%|
|Las Vegas, NV||$156,814||$379,401||$396,342||152.8%||4.5%|
|New York, NY||$181,392||$544,987||$571,130||214.9%||4.8%|
|San Diego, CA||$207,925||$781,965||$822,400||295.5%||5.2%|
|Virginia Beach, VA||$112,292||$295,365||$314,508||180.1%||6.5%|
|St. Louis, MO||$101,596||$207,554||$223,947||120.4%||7.9%|
|San Antonio, TX||$106,385||$265,595||$287,272||170%||8.2%|
|Kansas City, MO||$104,377||$253,085||$274,889||163.4%||8.6%|
|Oklahoma City, OK||$81,467||$192,089||$213,355||161.9%||11.1%|
Only 17 Cities Have Seen Home Prices Increase Less Than 5% in the Past Year
Despite having some of the most expensive home prices overall, two California cities are in the top three metro areas that had the smallest increase in home values last year. San Francisco experienced a 2% decline, while Sacramento home prices only increased 0.7%.
It looks like the San Francisco housing bubble is finally deflating. Despite having some of the highest home prices in the country — with the average home costing $1,096,477 — it’s one of just two cities, alongside New Orleans, that saw a decrease.
San Francisco home prices are so high because it’s a sought-after city, but with increases in income not matching increases in home prices, buyers are starting to look elsewhere. Another factor is increased interest rates, which make home buyers reluctant to take out mortgages on expensive homes.
|City||Typical Home Value in 2022||Typical Home Value in 2023||% Increase|
|1||San Francisco, CA||$1,113,873||$1,096,477||-2.0%|
|2||New Orleans, LA||$238,291||$237,942||-0.2%|
|5||Salt Lake City, UT||$510,876||$523,590||2.5%|
|8||San Jose, CA||$1,343,798||$1,385,816||3.0%|
|13||Los Angeles, CA||$824,093||$855,850||3.9%|
|15||Las Vegas, NV||$379,401||$396,341||4.5%|
|17||New York, NY||$544,987||$571,129||4.8%|
Home Values Have Increased by More Than 10% in 9 Cities Since 2022
The top four cities with the biggest home value increases last year are all in Florida: Miami, Jacksonville, Orlando, and Tampa. Miami not only had the highest increase at 16%, but it also has demonstrably higher home prices.
At $441,390, the typical home in Miami is 26% more expensive than in Jacksonville, where homes cost about $349,781. However, Jacksonville had the second-highest increase in home prices at 14%.
With its four major metros experiencing the biggest increases in home prices across the entire country, it could be said that Florida is experiencing an affordable housing crisis.
|City||Typical Home Value in 2022||Typical Home Value in 2023||% Increase|
|5||Oklahoma City, OK||$192,089||$213,355||11.1%|
10 Most Expensive ZIP Codes in the United States
Each of the top 10 most expensive ZIP codes — minus 98039 in Seattle – are in California or New York. Both are coastal states with the two largest cities in the U.S.: Los Angeles and New York City, respectively. They’re also well known for just about everything, including finding a great career, so they’re both in high demand.
Popularity is one thing all the 10 most expensive ZIP codes have in common. About 1 in 5 Americans (19%) chose Los Angeles as the top city they would move to if money were no object. New York wasn’t far behind at 15%.
|ZIP Code||Metro Area||Typical Home Value in 2023|
|94027||Atherton, in the San Francisco metro||$7.36M|
|90210||Beverly Hills, in the Los Angeles metro||$5.11M|
|11962||Sagaponack, in the New York City metro||$4.75M|
|94022||Los Altos Hills, in the San Jose metro||$4.26M|
|98039||Medina, in the Seattle metro||$4.18M|
|90402||Santa Monica, in the Los Angeles metro||$4.17M|
|93108||Montecito, in the Santa Barbara metro||$3.94M|
|92067||Rancho Santa Fe, in the San Diego metro||$3.9M|
|11976||Water Mill, in the New York City metro||$3.865M|
|92657||Newport Beach, in the Los Angeles metro||$3.86M|
As our research shows, home prices are still increasing around the country, quite drastically in some cities.
The U.S. population grew by 0.4%, or 1,256,003 people last year, and there is a demonstrable demand for housing that is still outpacing available homes for sale amid a growing population.
What the most expensive ZIP codes highlight is just how dire the cost of purchasing a home can become. They also show just how unattainable it is for the average American — who makes just $63,214 a year — to afford large, high-interest mortgages. If home buyers continue to hold out and cause a decline in home sales, perhaps home prices will continue to decline, too.
For historical home prices, we use the Median Sales Price of homes sold in the United States (MSPUS). This data set is made available by the St. Louis Fed. For more recent home prices and the most expensive ZIP codes, we use the Zillow Home Value Index.
For an overall historical measure of inflation, we use the Consumer Price Index for All Urban Consumers: All Items. CPIAUCSL is a measure of the average monthly change in the price for goods and services paid by urban consumers between any two time periods, made available by the St. Louis Fed.
The Federal Reserve rate changes came directly from the Federal Reserve. We used U.S. Census data for the generational comparison section.
About Home Bay
Where your real estate voyage begins. Since 2014, Home Bay has helped thousands of readers confidently sail through their next home sale or purchase. In 2021, Home Bay was acquired by Clever Real Estate, a free agent-matching service that has helped consumers save more than $160 million on real estate fees. Research by Home Bay’s Data Center has been cited by The New York Times, CNBC, MarketWatch, NPR, Apartment Therapy, Yahoo Finance, Black Enterprise, and more.
More Research from Home Bay
Articles You Might Like
Frequently Asked Questions
Home prices are so high because of increased demand for homes amid low inventory around the country. The U.S. is also experiencing high inflation, which contributes to increased costs for housing and everyday goods.
Inflation can have positive effects on real estate for sellers and investors but negative effects on everyday home buyers. For homeowners looking to sell their house, inflation causes home prices to increase even more, which provides them with more money than they would otherwise earn. For investors, rising inflation can increase the value of real estate as people look to invest their money in assets that tend to appreciate in value.
However, inflation can also lead to higher mortgage rates, which can make it more difficult for prospective home buyers. Additionally, inflation can lead to rising prices of materials and labor, making it more expensive to build and maintain homes. Therefore, while inflation can bring about a strong sellers’ market, it can also lead to higher costs that can make it more difficult to buy a home.
Inflation impacts real estate in a few ways. While it can increase home values, it may also lead to higher mortgage rates and higher costs for building and maintaining homes.
Sellers are in an advantageous position as prices inflate. Single-family homes, in particular, perform well during times of high inflation and allow homeowners to build equity over time.
However, high inflation can make it difficult for potential buyers to afford homeownership as home prices and the overall cost of living have historically outpaced income.