How much house can you afford? This question should be the first step in the home buying process. Understanding ahead of time how much house you can comfortably afford and having a basic knowledge of which features your new home will include helps prevent disappointment during the buying process and puts you in a better position to maintain control of your home purchase transaction.
National Median Home Prices
According to the National Association of Realtors (NAR), the median home sales price in the United States was $229,000 for the third quarter of 2015. That's about $12,000 (5.5 percent) higher than the median price for the third quarter of 2014. Total home sales increased by 3.4 percent, from 5.30 million units in the second quarter to 5.48 million in the third quarter of 2015. Thirty years ago, the median home sales price was $87,200, according to the US Census Bureau. For instance, for millennials born in November 1985 and buying a home in November 2015, the median home sales price is $141,800 higher as a homeowner now than it was when they entered the world.
Home Prices by Region
How much house you can afford varies greatly by US region. The West had the highest median home price in the third quarter of 2015 at $324,300, according to NAR. The Northeast had the second highest, at $269,400. The median sales price for the South was $200,700 for the third quarter of 2015. The lowest median home price was in the Midwest at $181,100. NAR states that 68 percent of first-time home buyers in 2014 were millennials (ages 25 to 34), who had a median annual income of $84,500 and were typically married but had no children. This popular group of home buyers accounted for 32 percent of all 2014 home sales.
What $229,000 Can Get You Around the Country
Let's say you can comfortably afford the national median sales price of $229,000. The following is an overview of what you can reasonably expect to get in some of the top markets around the country. This list is based on both current list prices and recently sold properties, via NAR and Zillow. It is an estimate only; actual sales prices may be higher or lower.
The Atlanta–Sandy Springs–Marietta area finished the third quarter of 2015 with a median sales price of $178,900. The largest city in the southeast, Atlanta was hit hard by the housing market crash. With new jobs and affordable housing, the Atlanta home market is rebounding and should see about 7 percent of growth over the next five years, according to NAR. In the city, $229,000 will buy a 1,100 square-foot condo with one bed and one full bath. If you don't mind spending a large portion of your day in your vehicle commuting to and from work in the city, you can find a nice 2,000-square-foot home with three beds and two baths in a neighborhood outside the city. It's about 15 years old and on a small lot, with monthly a homeowners association fee of about $185.
Consistently one of the strongest markets throughout 2015, Dallas–Fort Worth–Arlington had a median home sales price of $210,000 for the third quarter of 2015, up 8.5 percent from the previous year. New home construction keeps pace with demand, and home prices continue to rise. Several brick ranches with three beds and two baths, constructed during the mid-to-late 1960s, are on 0.25-acre lots near the city and available in the $229,000 range.
Los Angeles, California
The entertainment capital of the world is also one of the least affordable cities in America. The housing market for the country's second-largest city was hammered during the Great Recession. Employment numbers are expected to return to their pre-recession rate by 2016, but are you ready for sticker shock? The median home price for Los Angeles–Long Beach–Santa Ana in the third quarter of 2015 was $506,800. According to the US Census Bureau, the homeownership rate is less than 40 percent, and more than half of all housing units are in multi-unit structures. Few homes are available for less than $240,000. However, it's possible to find a 630-square-foot home with two beds and one bath on a tiny lot. This property is about 80 years old and in need of repairs.
The Twin Cities area is the second-largest market in the United States for home-owning millennials. This area finished the third quarter of 2015 with a median home price of $228,700. This affordability factor, a robust job market, and a diverse economy keep it a top area for growth and new construction. Buyers have a lot of options for their $229,000 purchase price. There are numerous three-bed, two-bath brick homes of 1,300 square feet that are 50 to 80 years old but tastefully restored. People seeking walkability can find conveniently located one-bed, one-bath condos of about 1,000 square feet. For new construction with three beds, two baths, and about 1,800 square feet, expect to pay $250,000 or more.
Prices in most major markets are rising slowly and steadily; builders and home buyers are cautiously optimistic. Understanding national trends and knowing the local market helps buyers make informed decisions on a home purchase. How much house can you afford for your specific situation? Check out bank rate for a handy calculator. Your main consideration should always be that the price you pay is one you can comfortably afford. You want to have money to enjoy life, make needed upgrades, and add features that will enhance the enjoyment of your home.