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Average Cost of Buying A Home in the U.S. – Mortgage – Investopedia

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Record-high median home prices, elevated mortgage interest rates, and limited for-sale inventory, are reshaping the landscape of the U.S. real estate market and the cost of buying a home. For example, the average median home price in the U.S. reached an all-time high of $419,300 in 2023, according to National Association of Realtors (NAR).

The price of buying a home can vary with region and each buyer’s particular circumstances. With this in mind, it’s more important than ever for potential home buyers to understand the costs associated with buying a home before diving in—from the sale price to closing costs. 


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Key Takeaways

  • Location, market trends, interest rates, and even the economy can significantly influence the cost of a home.
  • Home prices vary widely by state, and some states like California and New York have much higher median home sale prices compared to states like Ohio or Michigan.
  • Beyond the purchase price, prospective home buyers also need to plan for additional costs such as closing fees and homeowners insurance.
  • The cost of buying a home also varies based on interest rates, and economic factors such as inflation, job market, and supply chain. 

Average Home Prices in the U.S. 

Before we get into the numbers, it’s important to note why we focus on median versus average costs when talking about homebuying. 

An average can be misleading because it includes outliers like extremely high-cost and low-cost closings. The median price is the midpoint of all home-buying costs, less impacted by extreme price outliers, and often considered a more accurate representation of the market.

Important: The National Association of Realtors (NAR) reported on June 21, 2024 that the median home price jumped 5.8% from 2023 to $419,300, an all-time high. June 2024 marked the 11th consecutive month of rising home prices, too.

Similar data tracked by the Federal Reserve shows that upwards trend has continued into 2024. In the first quarter, the median home price of homes sold was $420,800, slightly below where it was in 2023, but nearly $100,000 more than the same period in 2020.

Just like the price of everyday essentials like gas and groceries can vary based on where you live, so can home prices. For that reason, to get an idea of what a home might really cost, experts recommend honing in on where you want to live for the most accurate affordability benchmarks.

“Home prices really need to be looked at on a hyperlocal level to get a true feel of where the trend lines are for homes in that area,” said Alana Lindsay of Coldwell Banker Warburg. 

Average Home Prices by State

Beyond the national average, the sale prices of homes across the US vary greatly, according to a report from Zillow.com. 

For example, California remains one of the highest-priced real estate markets in the U.S., consistent with historical trends. Southern states have picked up more value in their housing markets, while midwestern states like Illinois, Ohio, and Michigan have lower median home sale prices, indicating there may be more accessible housing in some metro areas. 

Here’s how the median sale price data breaks down across 10 of the most populus states, as of May 31, 2024: 

Understanding the Costs of Buying a Home

There’s more that goes into the cost of buying a home than the for listing price. 

When it comes time to buy, you’ll also pay closing costs which typically range from 1% to 4% of the home’s total purchase price. Normally, the most significant portion of the closing costs is the downpayment, which can account for 2%-5% of the home’s purchase price.

According to the National Association of Realtors (NAR), the typical down payment for first-time buyers is 6% and 17% for repeat buyers. For a $400,000 home, that would be $24,000 for first-time buyers, and $68,000 for repeat buyers. 

In addition to the down payment, closing costs may include:

  • Inspection fees: The home inspection evaluates the property’s condition and ensures no major issues or needed repairs. Typically, you’ll pay this out of pocket before closing.
  • Appraisal fees: An appraisal determines the market value of the home. This analysis protects you and the lenders, ensuring that the property price is on par with comparable properties and current market trends.
  • Title insurance: Protects the buyer and lender against any claims or legal fees related to disputes over the home’s ownership.
  • Attorney fees: Professional services to prepare documents and protect your interest in the buying process.
  • Additional title agent fees: Cover services provided by the title agent, who oversees the closing process and ensures that the title is transferred correctly.
  • Loan origination fees: Lenders charge these fees to process your mortgage application, including underwriting, documentation, and handling services.
  • Additional pre-paid costs: These include things like homeowners insurance, property taxes, mortgage interest, and the initial escrow deposit. These include
  • Private Mortgage Insurance (PMI): In some cases, if your down payment is less than 20% of the home’s purchase price, you may have to pay mortgage insurance at closing, which protects the lender if you default on the loan.

Down payment assistance programs, often offered by state and local governments, provide grants or low-interest loans to eligible buyers and can reduce some closing costs. 

Discount points may also allow buyers to pay a one-time fee at closing exchange for a lower interest rate over the life of the loan. Seller concessions are agreements where the seller agrees to pay a portion of the closing costs, including the down payment, to help make the home purchase more affordable for the buyer.

Getting ready to buy your first home? We’ve created a guide to walk you through each step so you can make smart financial decisions in an unprecedented market. Check out “Owning It: How To Buy a House“ to learn more. 

Several factors determine how much you’ll pay to buy a home. Here’s a breakdown to help you understand how and why these costs vary, especially right now: 

Interest Rates

Mortgage rates vary based on the type of home loan: 

National Averages of Lenders’ Best Mortgage Rates
Loan Type New Purchase Refinance
30-Year Fixed  6.97% 6.92%
FHA 30-Year Fixed 6.75%  6.60%
15-Year Fixed 6.17% 6.15%
Jumbo 30-Year Fixed 7.02% 7.01%
5/6 ARM 7.74% 7.58%
Provided via the Zillow Mortgage API

Like most loans, the interest rate you ultimately qualify for when looking to buy a home is tied to your credit profile. The healthier your credit, the lower the rate you may get, and in turn, the lower the overall cost of your home loan.  

Shelby McDaniels, National Director of Business Development for Home Lending at Chase Bank, says, “When it comes to homeownership, your credit score, along with your debt-to-income ratio — is a major factor in determining what your loan terms will be. That is, whether you’ll be approved for a mortgage, and if so, at what rate. ”

Mortgage interest rates also vary based on macroeconomic factors like inflation, which the Federal Reserve has been trying to lower since 2022 by raising it’s benchmark interest rate (the Federal Funds Rate) that is directly tied to many consumer lending products. 

While the rate doesn’t impact mortgage interest rates directly, there is a correlation between climbing fed funds rates and higher mortgage rates. Why? Because lenders will typically demand higher returns to offset the decreased purchasing power of money, which in turn raises mortgage rates and closing costs.

Right now, the Fed is holding it’s rate steady, but mortgage rates are still near historically high levels: 

Market & Economic Factors

Economic conditions, like inflation, job markets, and prevailing interest rates, can affect home prices and, eventually, home closing costs. When inflation is high, building materials, labor, and land costs can rise, increasing the overall cost of homes, including new and existing structures. 

The status of the job market also determines home prices and closing costs. In a booming job market with low unemployment rates, homebuyers generally have higher incomes, which can increase demand for homes and push home prices. 

In contrast, the opposite is true in an economic downturn with high unemployment levels when demand for homes declines and suppresses prices.

An increase in remote work has contributed to soaring home prices over the past few years.

Location

Closing costs will vary due to the difference in state and local taxes, which can vary widely from one location to another. Some tax jurisdictions have higher property or transfer taxes, directly impacting closing costs. 

Additionally, regional variations in the cost of living can influence the fees related to real estate transactions, such as attorney fees, title insurance, and appraisal fees. 

Furthermore, regional real estate differences based on historical housing prices, economic trends, and the general cost of living all tie back to a homes sale price. Higher-priced homes will have larger loans, and may also come with higher insurance rates, property taxes, etc., creating an overall higher price tag.

Home Type and Size

The type and size of the home you’ll purchase will significantly influence pricing and home closing costs.  For example, larger homes may be pricier, directly translating to higher closing costs.

Then, different types of homes—such as single-family homes, townhouses, condominiums, or multi-family properties—come with their own cost considerations.

For instance, larger multi-family properties may have higher costs due to higher price points, more extensive inspections, appraisals, and higher down payment requirements. Condominiums might have lower individual unit costs but may require additional closing costs like prepaid association or condo questionnaire fees. 

Additional Costs to Consider 

Before closing on a home purchase, consider the ongoing expenses, too, such as:

  • Monthly mortgage payments: Principal and interest on your loan are paid monthly throughout the mortgage term.
  • Property taxes: Annual taxes levied by the local government, often paid monthly into an escrow account. The U.S. average as a percentage of personal income is 3.10%.
  • Homeowners Association (HOA) fees: For properties within a community eating shared amenities, these range from $100 to over $1,000 per month.
  • Homeowners insurance: Protects your property against damage and loss
  • Utilities: Monthly like electricity, water, gas and internet
  • Maintenance and repairs: Upkeep and repairs of the home

Initially, you may also have moving costs or the expenses to furnish, decorate, or otherwise prepare your home for occupancy. This might include some light renovation, like painting or adding window treatments for privacy, or a major home improvement project that will cost much more.

Cost of Homes in the U.S.: What’s Next? 

The general consensus among real estate professionals and industry analysts is that home prices will continue upward in the immediate future, but uncertainty remains, especially in the second half of 2024. 

“Unless the [Federal Reserve] lowers rates, the next 3-4 months are going to be the same,” said Mike Opyd a managing broker in the Chicago area. “It is hard to predict the past that, though, as this is an election year. What happens may determine what transpires.”

While there are many factors that play into home prices, ongoing supply and demand issues have and will likely continue to keep prices high. 

Alana Lindsay of Coldwell Banker Warburg opines, “Home prices really need to be looked at on a hyperlocal level to get a true feel of where the trend lines are for homes in that area. 

“In general, we do not have enough homes being built to keep up with the demand, and that has been an ongoing trend since the 2008 recession,” said Alana Lindsay of Coldwell Banker Warburg. 

Barring a Black Swan event like the Great Financial Crisis (GFC) or a similar major economic crash or global catastrophe, home prices will likely continue increasing, even if interest rates slightly decrease soon.

Frequently Asked Questions (FAQs)

What is better, homeownership or renting?

Whether homeownership is better than renting depends on your financial goals and long-term plans. Owning builds equity and provides stability, while renting offers flexibility without the burden of spending money to maintain a home.

Can I negotiate closing costs?

Yes, you can negotiate closing costs for a home. Many fees, such as lender fees, title insurance, and even real estate agent commissions, can be negotiated to reduce overall expenses.

Who pays for the closing costs, the seller or the buyer?

Both the buyer and seller can pay closing costs, but typically, buyers cover most fees, including loan-related costs, while sellers often pay agent commissions and transfer taxes. This can vary by negotiation.

The Bottom Line

The cost of buying a home in the U.S. varies greatly based on personal circumstances, location, property type, and economic conditions. And remember, the cost of buying a home extends beyond the for sale price. Understanding all related costs will help you better navigate the market and perhaps even save money along the way. 

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