You Won't Believe How High the Median U.S. Home Sale Price Is

Mortgages were super affordable in 2020 and 2021, when lenders lowered their rates substantially. But that's not the case today -- at all. The average 30-year mortgage rate is 6.94%, according to Freddie Mac. And that wouldn't be so bad if it weren't for the fact that home prices have also increased. In fact, you may be shocked at how much money the median U.S. home just sold for.

Home prices keep rising

You'd think today's mortgage rates would be spurring a decline in buyer demand, resulting in lower home prices. But nope -- if anything, home prices just keep rising.

In April, the median existing U.S. home sale price was $407,600, according to the National Association of Realtors. That's an increase of 5.7% from a year prior. It also marks the 10th consecutive month of year-over-year home price gains.

How is it possible that home prices keep rising? It's simple: There's very little inventory. And because of that low supply, buyers are willing to pay more. (It's kind of like how people were willing to pay $20 for hand sanitizer back in 2020. Whenever demand for a given product exceeds supply, prices just soar.)

Why is there such little inventory? It's because of today's mortgage rates. Existing homeowners don't want to give up the lower rates they're currently paying to buy another home at today's rates at close to 7%. Can you blame them?

How to know if you can afford a given home

Rising home prices are pushing more and more buyers out of the market. But they're not pushing everyone out. And that's not necessarily a great thing.

Some buyers may be at risk of getting in over their heads by purchasing homes that are beyond their budgets. And that's a trap you don't want to fall into. Thankfully, there's a really easy way to avoid that situation.

First, see what your monthly take-home pay comes to after taxes and other deductions. Next, figure out what 30% of that total is. That's the maximum you should be spending on recurring housing costs each month.

From there, you can use a mortgage calculator to see what your monthly payment would be based on the price of a given home, the down payment amount you have, and the average mortgage rate available (though keep in mind that if you don't have the best credit, you may end up with a higher rate). Then, add in recurring housing costs like property taxes, homeowners insurance, and homeowners association (HOA) fees, if applicable. If those numbers meet or fall below 30% of your pay, you're in decent shape to buy a home.

So let's say you bring home $6,000 a month. That means you have an $1,800 budget for monthly housing expenses. You won't be able to afford a home selling for $407,600 if you only have a 20% down payment, because your monthly payment for a 30-year loan at 6.94% would be $2,155 for principal and interest. That's already above $1,800 without even accounting for insurance and property taxes. But you can play around with different numbers to see what home price does work.

Home prices should fall eventually

In time, buyers should get relief from sky-high home prices. As mortgage rates fall, listings should increase, which should lead to prices falling to some degree. And because the Federal Reserve is expected to start lowering interest rates this year, we could be looking at more affordable mortgage rates before the end of 2024.

But if you want to buy now, and you come across a property you like, use the 30% rule to see if the home is affordable. If it's not, do yourself a favor and wait so you don't wind up taking on an expense you really can't swing.

If you buy a home and can't keep up with the costs, you risk losing your home and wrecking your credit. That's a situation you never want to put yourself into.