U.S. Home Values Soared in May. Here's Where They Stand

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Here's what home prices looked like last month. Are they too high for your budget?

Frustrated. Fed up. Drained.

There are just some of the terms that might resonate with today's home buyers.

Not only is housing inventory extremely limited, home prices have climbed substantially during the pandemic, and many buyers are priced out of neighborhoods that would typically be within reach. While mortgage rates have been very competitive, that may not be enough to offset the inflated level of home prices.

How high have home prices climbed?

The typical U.S. home grew in value by 13.2% in May 2021 compared to May 2020, reports Zillow. It also grew 1.7% compared to April.

The average U.S. home price reached $287,148 last month. And annual growth came in at 10% or higher in 46 of the country's 50 largest metro areas. Leading the pack were:

  • Austin (30.5% growth)
  • Phoenix (23.5% growth)
  • Salt Lake City (20.6% growth)

How much can you afford to spend on a home?

As a general rule, your monthly housing costs should not exceed 30% of your take-home pay. There are some exceptions, such as if you live in a city where housing is always extraordinarily expensive, like San Francisco or New York. In those cities, it's common to not need a car, which can help offset the cost of a pricier home. But usually, you should aim to keep your housing costs to 30% of your paycheck or less.

By "housing costs," we mean your:

So how do you know if a home is priced too high for your budget? Use a mortgage calculator to determine what your monthly payments will look like based on the home's price, the amount of money you have for a down payment, and the interest rate you think you'll qualify for. (If you're not sure, see what interest rates look like in general. If your credit score is good, assume you'll be eligible for something in that ballpark.)

Let's say you bring home $4,000 a month, and have your eye on a home. That 30% guide says you shouldn't spend more than $1,200 on housing. If your calculator reveals that you're looking at $1,400 including monthly principal and interest payments, property taxes, and insurance, then you probably shouldn't bid on that home.

Home values are up right now due to low supply and high demand. As more inventory hits the market, home prices should start to come down. If today's homes are out of reach, you may want to put your search on hold and wait for things to cool off. You don't want to buy a home that's a stretch financially, then struggle to keep up.

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