Average home price in the U.S. is rising: $348K in 2022

At the beginning of 2022, the average home price in the U.S. reached $348,079 — a record high set by low supply and increasing demand during the COVID-19 pandemic. If you’re looking to buy a home soon, it’s important to understand the housing market's current state and how it could affect your buying process and homeowners insurance decisions.

Key findings

Using Zillow data, The Zebra found:

• The national average home price in the U.S. climbed 29% since the COVID-19 pandemic began in 2020.
• Twenty-six percent of homes sold in the U.S. in 2021 fell between $200,000 and $299,999. However, the overall average price is higher because another 20% of homes sold for $500,000 and higher.
• Hawaii, the District of Columbia and California are the most expensive states to buy a house in, whereas West Virginia, Mississippi and Arkansas are the cheapest.
• Prices for newly built houses are increasing at a higher rate than existing home prices. Between 2020 and 2021, new home prices increased 18%.

Keep reading for a look into recent housing market trends, why prices are rising and tips for buying a house in today’s market, or jump down to the infographic for a quick review.

Housing market trends

Like many consumer goods, houses dramatically increased in price after the COVID-19 pandemic emerged. After recouping from the 2007-2009 Great Recession — when the housing market plummeted — the annual increase in home prices hovered between 3% and 5%. Once the pandemic hit, the yearly increase jumped into double digits — 12% between 2020 and 2021 and 15% between 2021 and 2022.

Looking even further back, average home prices have increased 88% in the last decade and 125% from two decades ago.

Some house types are experiencing more volatility than others. For example, luxury home prices grew by more than 30% in three of the U.S’s most populous cities between 2020 and 2021.

Average costs of new houses are increasing at a higher rate — specifically 18% — compared to existing homes. New constructions are typically more expensive than existing homes, but the gap has widened with the rising cost of building materials.

Over the last decade, the three states with the highest percentage of change in average home prices were Idaho (217%), Nevada (211%) and Arizona (194%). During the same time period, Alaska (30%), Louisiana (37%) and Connecticut (39%) saw the smallest increase in average house prices.

Why are houses so expensive right now?

With inflation and the typical growing cost of living, it’s natural for home prices to increase over time. However, the spike between pre-COVID and 2021, and again in 2022, well surpassed the annual rate of average price increases.

For many years prior to the pandemic, it was said that younger generations were not interested or not able to buy a house due to the rising average home prices in the U.S. and other debts like student loans. While these struggles haven't changed, 28% of millennials and 20% of Gen Zers became more interested in buying a home during the pandemic.

In total, the number of homes sold in 2021 was higher — an 8% increase from 2020 — than it’s been since before the Great Recession. Homeownership spiked in 2020, and although it’s dropped since, it remains higher than pre-pandemic rates from 2019 and earlier.

While demand is growing fast, there has been little change in the number of homes in the U.S. The number of homes grows in the millions annually, but in the grand scheme of things, between 2019 and 2021, there was only a 1.7% increase in housing units. This number doesn’t showcase how many houses are actually on the market at any given time. The demand for homes is simply higher than the supply can keep up with, contributing to the rising average home price in the U.S. and creating a seller’s market.

Among the many other contributing factors to the rising house prices is the fact that more people than usual bought second homes during the pandemic, and senior citizens are opting out of senior living facilities and choosing to live in their homes longer.

When will home prices go down?

It’s difficult to say for sure when Americans can expect to see average home prices level out and return to lower annual interest rates. 

Housing experts from Zillow have estimated that house prices will continue to rise another 15% within 12 months. Demand will likely continue to rise with more millennials and Gen Zers looking to buy homes in the slow-growing supply. House prices will likely continue to grow at a high rate, at least for the foreseeable future. If it continues for long, we may see more Americans with home buying FOMO, potentially further raising prices.

Additionally, economists at Goldman Sachs estimate a 35% probability of another recession within the next two years. If this occurs, the housing market would likely take a hit similar to 2008.

How do the rising home prices affect insurance rates?

When financing a house, homeowners insurance policies are required by mortgage lenders. The house’s location, dwelling type and cost to rebuild are all contributing factors to the cost of homeowners insurance. Legally, homeowners insurance is not required, so all-cash purchases can get away without insurance, though it’s not recommended as insurance protects buyers.

It's normal for premiums to increase annually, and unlike many other living costs, the coronavirus pandemic has not caused a dramatic spike in insurance rates. Premiums for homeowners insurance averaged $1,272 in 2019 and $1,406 in 2022, a 10.5% increase. Compared to a decade ago, the three-year gap between 2009 and 2012 had a higher increase at 17.5%.

How to put an offer on a house in today’s market

Initially, when the pandemic first hit, there were a few months where interest rates were low, and opportunities were aplenty. But it didn't take long for the housing market to quickly transition into a seller's market with low supply.

In a stable market, the home buying process is fairly straightforward. You set a budget and get pre-approved, then work with a real estate agent to find the best house, submit an offer and work through the due diligence process until you reach the closing date. In today’s market, it’s worth implementing a few unique strategies to help you win the bidding war on your dream home.

1. Look for homes well under your budget

If you have a strict budget, you may want to consider searching for homes well under your budget. On average, about 50% of homes are selling over the asking price today. To be competitive, consider offering 1–3% at a minimum over asking. 

2. Identify your non-negotiables and nice-to-haves

Since supply is low and houses are selling over asking, you may need to compromise on what you're looking for in a home. For example, while a chef-grade kitchen might be your ultimate goal, the layout and storage might be more important now than state-of-the-art appliances that you can purchase later.

3. Add in an escalation clause

An escalation clause is an addendum worked into a real estate contract. It indicates a buyer will raise their offer by a specific amount if the seller receives a more competitive offer. Typically, escalation clauses are an additional few thousand dollars.

4. Consider waiving contingencies

Contingencies — like home inspections, appraisals and surveys — are added to real estate contracts to protect buyers during the home purchasing process. If these contingencies show poor results, the buyer can withdraw their offer.

While it's not typically advisable to buy a home without an inspection or appraisal, doing so may help you look like a more attractive buyer. However, for inspections specifically, beware that it may be a risky move if the home is older.

5. Get personal

Leave a note to the sellers explaining why you like their house and what makes you the best buyer. Point out unique features they added to the home and explain any special life events that might make you more relatable, like expecting a child or newlyweds buying their first house. Not all agents recommend this practice, so check with yours before writing a note.

You can also ask your realtor to build a rapport with the seller's agent. Anything you can do to put a face to your name can help.

The average home price in the U.S. has spiked since the COVID-19 pandemic began. Unfortunately, it may be a few years before the prices level out, and it could take a recession to do so. For customers in the market to buy a house now, try out our tips for putting an offer in today's market. You can also save on homeowners insurance by comparing rates since rates have not increased due to the pandemic.

Sources: Zillow | Statista | Investopedia | Bloomberg | Fannie Mae