The cost of homes in the United States increased significantly during the COVID-19 pandemic. Houses in many areas were selling for well above the original asking price, leaving prospective homeowners with limited choices. Home prices have fluctuated greatly throughout the years based on inflation, housing market changes, economic crises, and mortgage rates. How has the average home price in America changed over time when adjusted for inflation?
The team at Madison Trust analyzed data obtained from the Federal Reserve Bank of St. Louis between 1963 and 2023 to determine how much the average home price in the USA has changed through history when adjusted for inflation.
When Was the Most Expensive Time to Buy a Home?
When adjusted for inflation, the most expensive time to buy a home since 1963 was 2022. The average home price was $552,600 ($570,511 in 2023 dollars). The COVID-19 pandemic led many people to relocate or find new housing situations, which caused prices of homes in some areas to skyrocket.
1963 was the year with the lowest home prices since the data was collected. In 1963, the average house price in the United States was just $19,600, which would be $195,791 in 2023 dollars.
Events That Led to Higher and Lower Housing Prices
There are several historical events that contributed to higher and lower housing prices. The most notable event of the past 20 years was the subprime mortgage crisis of 2007-2008. In the years prior to the crisis, there was a housing bubble in the United States that was bound to burst at any time. There was a large increase in foreclosure rates in 2006 which led to an economic crisis impacting mortgage markets, home retail stores, home building professionals, and foreign banks which, in turn, resulted in a recession across the entire United States. In 2007, right before the housing bubble collapsed, homes averaged $305,800 ($450,309 adjusted for inflation). By 2009, average home prices dipped to $272,900 ($388,401 adjusted for inflation). That’s a drop of nearly 14%.
Another major event that impacted the average home price in the U.S. was the recession of the early 1990s. The U.S. economy was becoming weak throughout the late 1980s because of a policy enacted by the Federal Reserve meant to reduce inflation, but it ultimately limited economic expansion. The Tax Reform Act of 1986 also may have contributed to this recession. In 1989, the inflation-adjusted price of a home was an average of $370,381. By 1993, the average home price was down to $313,161; an average of 15.4% less.
In more recent times, the COVID-19 pandemic had an immense impact on housing costs. With many companies encouraging employees to work remotely to keep them safe, many had the opportunity to move to lower-cost areas and continue working their jobs from home. This resulted in the cost of homes in suburban and less populated areas rising significantly. An additional factor that resulted in higher home prices was the increase in house flipping during this period. Many investors took the opportunity to purchase properties, renovate them, and sell them at a higher cost. In 2019, the average inflation-adjusted cost of a house was $459,810. It skyrocketed over 19% to $570,511 by 2022.
Financial Tips for Purchasing a Home
The process of buying a house can be daunting and expensive. Determining if you are financially ready to purchase a home is the first step. It is likely one of the biggest financial decisions you will make in your life, so it is important to go over all the steps before you put an offer on a home. Make sure to consider your debts, income, location, and the amount you'll be able to contribute towards a down payment before you make your decision.
Once you apply for a mortgage, you may find that the amount the bank allows you is much higher than you expected. Be sure to keep in mind what you will feasibly be able to pay monthly for your mortgage. Another consideration is how much work needs to be done on the house. Is it move-in ready or is it a fixer-upper? These are additional costs that can impact how much you choose to spend on purchasing your new home.
Another thing to consider is private mortgage insurance (PMI), which generally applies to potential homeowners who put less than 20% of their purchase price as a down payment. It isn't required for all mortgages, but is something to consider when applying.
Some people choose to use a real estate IRA in order to invest retirement savings into commercial or multi-family real estate properties. Buying real estate with a self-directed IRA isn't difficult, but it can take some time to find the right process and property for you.
How Home Prices Have Changed (Adjusted for Inflation)
|
Year |
Price |
Price (2023 Inflation Adjusted) |
|
1963 |
$19,600 |
$195,791 |
|
1964 |
$20,900 |
$206,763 |
|
1965 |
$21,700 |
$210,613 |
|
1966 |
$22,800 |
$213,219 |
|
1967 |
$24,400 |
$222,765 |
|
1968 |
$27,000 |
$235,329 |
|
1969 |
$27,100 |
$223,536 |
|
1970 |
$26,300 |
$205,374 |
|
1971 |
$28,200 |
$212,135 |
|
1972 |
$31,600 |
$229,844 |
|
1973 |
$36,600 |
$246,946 |
|
1974 |
$39,300 |
$236,624 |
|
1975 |
$44,400 |
$248,827 |
|
1976 |
$50,300 |
$267,286 |
|
1977 |
$57,500 |
$287,193 |
|
1978 |
$66,400 |
$304,461 |
|
1979 |
$72,700 |
$297,443 |
|
1980 |
$80,000 |
$290,256 |
|
1981 |
$83,700 |
$275,718 |
|
1982 |
$84,600 |
$265,061 |
|
1983 |
$90,800 |
$276,599 |
|
1984 |
$97,800 |
$285,757 |
|
1985 |
$103,800 |
$293,802 |
|
1986 |
$115,600 |
$322,455 |
|
1987 |
$133,500 |
$356,237 |
|
1988 |
$140,400 |
$359,376 |
|
1989 |
$151,200 |
$370,381 |
|
1990 |
$150,100 |
$345,928 |
|
1991 |
$144,400 |
$323,346 |
|
1992 |
$147,200 |
$319,388 |
|
1993 |
$148,300 |
$313,161 |
|
1994 |
$156,100 |
$321,254 |
|
1995 |
$160,900 |
$322,084 |
|
1996 |
$171,000 |
$332,355 |
|
1997 |
$175,400 |
$333,945 |
|
1998 |
$181,500 |
$340,502 |
|
1999 |
$204,800 |
$374,620 |
|
2000 |
$212,100 |
$375,040 |
|
2001 |
$214,200 |
$370,867 |
|
2002 |
$232,500 |
$394,559 |
|
2003 |
$256,000 |
$425,750 |
|
2004 |
$286,300 |
$461,426 |
|
2005 |
$294,200 |
$454,402 |
|
2006 |
$299,600 |
$456,780 |
|
2007 |
$305,800 |
$450,309 |
|
2008 |
$276,600 |
$392,947 |
|
2009 |
$272,900 |
$388,401 |
|
2010 |
$278,000 |
$391,076 |
|
2011 |
$259,700 |
$352,892 |
|
2012 |
$297,700 |
$395,966 |
|
2013 |
$334,400 |
$440,535 |
|
2014 |
$369,400 |
$478,677 |
|
2015 |
$366,700 |
$474,369 |
|
2016 |
$364,900 |
$464,442 |
|
2017 |
$399,700 |
$498,559 |
|
2018 |
$384,000 |
$467,191 |
|
2019 |
$384,600 |
$459,810 |
|
2020 |
$403,900 |
$477,243 |
|
2021 |
$497,300 |
$553,185 |
|
2022 |
$552,600 |
$570,511 |
|
2023 |
$492,300 |
$492,300 |
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