Select’s editorial team works independently to review financial products and write articles that our readers will find useful. We may receive a commission when you click on product links from our affiliate partners.
Over the past year and a half we have seen homes selling for astronomical prices, well above market value. It’s a housing market that, to say the least, has left a bitter taste in the mouths of many aspiring buyers. And while this has happened under extraordinary circumstances – during a pandemic that has pushed people out of densely populated cities and into suburban homes and in a time of record interest rates – it has left a lot of people behind. ask yourself: if houses are so expensive now, by how much could prices increase in the future?
According to RenoFi, the average price of a single-family home in the United States could reach $ 382,000 by 2030. Depending on where you live, that figure may seem like a drop in the bucket compared to home prices in the United States. your city. For example, the average price of a house in New York this year is $ 795,000, but the average price around Albany in upstate New York is $ 227,500, according to Redfin Trends. .
RenoFi also looked at projected house prices in 2030 for each state and some major cities in the United States. He predicts San Francisco will have the highest average home value in the country at a staggering $ 2,612,484. Two other Californian cities followed, San Jose at $ 2,251,703 and Oakland at $ 1,713,554.
House prices in the United States have increased 48.55% over the past 10 years, according to RenoFi. During the projections, RenoFi assumed that house prices would rise by the same amount again over the next decade. Here’s what else RenoFi shared in their report:
- New York City will have an average home value of $ 964,101 by 2030.
- The average value of a home in Nashville will reach $ 539,292. Currently, the average value of a home is $ 387,000.
- Houston will see an average home value of $ 309,806 by 2030. TThe average home value in August 2021 is $ 231,326.
RenoFi has the full breakdown on their website.
The value of the home doesn’t always match the actual price a buyer is paying. Home value represents the amount of money a home is likely to sell based on the market. But buyers can agree to pay a price lower than or even higher than the value of the house.
What drives up the values of the house?
Don’t Quit Your Day Job, a website providing investment resources, used housing price index data from Robert Shiller, professor of economics at Yale University and Federal Housing Finance Agency to find the median value of existing homes in the United States.
- In September 1996, the media value was $ 112,250.08 ($ 191,153.27 after adjusting for inflation)
- In September 2006, the average price was $ 216,032.63 ($ 286,073.86 after adjusting for inflation)
- In September 2016, the average price was $ 226,095.63 ($ 251,758.92 after adjustment)
- As of May 2021, the average price is $ 329,522.56
This number is about to increase.
“From what we’ve seen so far, we’re on track for average home prices to hover around $ 330,000 to $ 340,000 this year,” said Danielle Hale, Chief Economist at Realtor. “These are big price increases. We see it because sellers ask a price, buyers bid and the house usually sells for another price. This year we have seen the sale price exceed the asking price. in many places. “
It was at a time when interest rates were very low and demand for housing increased. But even in normal times, house prices continue to rise – as we have seen by looking at house prices from 1996 to 2006 to 2016. Supply and demand and interest rates can certainly affect prices. house prices, but according to Hale, another contributing factor may be an increase. in wages.
“In a normal economy, we see house prices rising at about the same level as wage increases because the majority of homebuyers use the wage income to buy their home,” she explains. “Even as incomes rise, house prices are rising even faster.”
According to data from the Social Security Administration, the average salary in the United States between 1996 and 2019 increased from $ 24,859.17 to $ 51,916.27. Thanks to inflation and the rising cost of living, it may seem like the dollar is offering less and less to workers over time. This is why, for many people, it may still seem like homeownership is a distant goal.
How can people prepare for higher prices?
While examining the future value of the home may make buying a home seem like a pipe dream, it’s important for future homeowners to start taking steps to improve their chances of being successful. able to afford the home they want in the future.
“The key is for kids to start saving as soon as they can,” Hale says. “The earlier you start, the more money you can accumulate and the larger your potential down payment will be. Be consistent about this. “
If you don’t plan on buying a home for five to ten years, you might consider investing the money you save for a down payment to make sure your money beats inflation.
Index funds are an inexpensive way to invest, and some funds, like those linked to the S&P 500, have a history of average returns of 10% per year. (Note that past performance does not indicate future success.) You can start by opening a brokerage account through a financial provider like Fidelity or Charles Schwab.
If you want something a little more free, consider robo-advisers like Wealthfront and Betterment, which will automatically invest and rebalance your money based on preferences like risk tolerance and when you want to make withdrawals, so not to take too much. risk.
Acorns is another investment platform suitable for new investors. It has a feature that will automatically invest any available currency during your daily shopping, which is an easy way to make investing a part of your daily life.
You don’t want to invest the money you save for a down payment if you have a much longer time horizon to buy a home so that you can weather any downturn in the market. And keep in mind that when you sell your assets and withdraw the money, you will owe taxes.
On the secure Wealthfront site
Minimum deposit and balance
The minimum deposit and balance requirements may vary depending on the investment vehicle chosen. Minimum deposit of $ 500 for investment accounts
The fees may vary depending on the chosen investment vehicle. No account, transfer, transaction or commission fees (fund ratios may apply). Wealthfront’s annual management advisory fee is 0.25% of your account balance
Stocks, bonds, ETFs and cash. Additional asset classes to your portfolio include real estate, natural resources, and dividend-paying stocks
Offers free financial planning for college planning, retirement, and home buying
On the secure Betterment site
Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle chosen. For Betterment Digital Investing, minimum balance of $ 0; Premium Investing requires a minimum balance of $ 100,000
The fees may vary depending on the chosen investment vehicle. For Betterment Digital Investing, 0.25% of your fund balance as an annual account fee; Premium Investing has an annual fee of 0.40%
Up to one year of free management service with a qualifying deposit within 45 days of registration. Valid only for new individual investment accounts with Betterment LLC
Stocks, bonds, ETFs and cash
Betterment RetireGuide ™ helps users plan for retirement
If you are looking to buy a home with less time on your own, however, you are better off saving your money in a high yield savings account, like the Marcus by Goldman Sachs High Yield Savings Account or the High Yield Savings Account. Bank High Savings. – Savings account with yield. This way you will earn some interest on that money even if you do not make contributions to the account.
It can also be helpful to use RenoFi’s projections to estimate how much money you might need to buy a home in the state or city of your choice over the next 10 years. This can be especially useful for people who like to have a specific end goal in mind in order to save their money more effectively.
It is generally recommended that you have a down payment of 10-20% if you plan to take out a conventional mortgage. By looking at future projections, you can roughly calculate how much you’ll need for a down payment, and then break it down by the approximate number of months you want to allow yourself before you begin your home search.
So if you want to buy a $ 400,000 house in 2030, you have 9 years to start saving. Here’s how you can break down the calculations:
- If you are saving for a 10% down payment ($ 40,000) and put the money in a high yield savings account with an APY of 0.5%, you should save about $ 363 per month.
- If you are saving for a 20% down payment ($ 80,000) and put the money in a high yield savings account with an APY of 0.5%, you should save about $ 725 per month.
- If you are saving for a 10% down payment ($ 40,000) and put the money in an investment account with an estimated return of 10% year over year, you should save approximately $ 230 per month.
- If you save for a 20% down payment ($ 80,000) and put the money in an investment account with an estimated return of 10% year over year, you should save about $ 460 per month.
Remember, you don’t have to start by saving $ 725 per month. You can start slower and build up as you earn more money and save extra money like tax returns, inheritances, and year-end bonuses.
It might sound intimidating, but sometimes a clear plan can help you reach your financial goals more easily.
Disclosure: NBCUniversal and Comcast Ventures are investors in Tassels, and CNBC has a content partnership with it.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.