Households Being Priced Out of the Housing Market

Increases in home prices, mortgage rates, housing supply and property taxes have a direct impact on housing affordability. These factors lead to many Americans being priced out of the housing market. Often, stakeholders are interested in increases due to changes in government regulation. NAHB’s “priced-out" methodology provides a convenient way of putting these changes in context.

Effects of Price Increases

NAHB’s latest estimates show that, nationally, 103.5 million households are already unable to afford the median-priced ($495,750) new home with a mortgage interest rate of 6.5%.

A $1,000 increase in the price of that median-priced new home will further price 106,031 U.S. households out of the market. Based on their incomes and standard underwriting criteria, these households would be able to qualify for a mortgage to purchase the home before the price increase, but not afterward.

Similar priced-out estimates are available for individual states and over 300 metro areas.

Affordability Pyramid

The priced-out methodology can also be used to generate a housing affordability pyramid which shows that, as the price of a home increases, the number of households in each tier that are able to afford it decreases (see also the description of the pyramid).

Difference Between Builder Costs and Home Prices

A related issue is the difference between builder costs and the final price of a new home. When government-imposed fees, changes in regulations, or other factors increase costs for a builder or developer, the final price of the home to the buyers will usually go up by more than the increase in the costs, as related costs, such as financing, real estate agent commissions and margins required to get construction loans underwritten also rise. NAHB estimates that these add-on charges range from 0% if a fee is imposed directly on buyers, to 30% if cost is incurred when applying for site development approval.

Understanding Interest Rates and Housing Price Dynamics

Prospective home buyers in the real estate market are also adversely affected when interest rates rise. NAHB’s priced-out estimates show that, depending on the starting rate, a quarter-point increase in the rate of 6.5% with zero points on a 30-year fixed-rate mortgage can price over 1.1 million U.S. households out of the market for the median-priced new home.