Households Being Priced Out of the Housing Market

Increases in home prices, mortgage rates, and property taxes have a direct impact on housing affordability. These factors lead to many Americans being priced out of the housing market. NAHB’s “priced-out" methodology calculates how many households would be affected by these changes.

Price Increases

NAHB’s latest estimates show that, nationally, 100.5 million households are already unable to afford the median-priced ($459,826) new home under the 6.5% mortgage interest rate.

A $1,000 increase in the price of that median-priced new home will further price 115,593 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 measures of affordability and priced-out estimates are available for individual states and over 300 metro areas.

Interest Rate Increases

Prospective home buyers are also adversely affected when interest rates rise. NAHB’s priced-out estimates show that a quarter-point increase in the rate of 6.5% on a 30-year fixed-rate mortgage can price 1.14 million U.S. households out of the market for the median-priced new home. The effect of each 25 basis-point increase in interest rates, from 3.75% to 8.25%, on affordability for a median-priced home is also available.

Housing 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).

Builder Costs and Home Prices

A related issue is the difference between builder costs and the final price of a new home. When building material prices, impact fees, regulation changes, or other factors increase costs for a builder or developer, the final home price often rises by more than the initial cost increase. This is because related expenses, such as financing, broker commissions and margins required to secure construction loans, also increase. NAHB estimates that these add-on charges range from 0-30% depending on when the cost is incurred.