A question that NAHB Economics is often called upon to answer is “What happens to housing affordability?” when either interest rates or house prices go up. The NAHB Priced Out Model provides most straightforward answers. The model estimates that nationally a $1,000 increase in the home price leads to pricing out about 232,447 households out of the market for a median-priced new home. View the US income distribution and number of households priced out by a $1,000 price increase.

The size of the impacts varies across metros and largely depends on their population and income distribution. “Metro Area House Prices: the “Priced Out” Effect” discusses the priced out results for more than 300 metropolitan areas. The article also explains the methodology that underlies the priced out estimates and can serve as a background document for any of the material in this section. For a brief explanation of the priced out model, view the one-page methodology document.

The Priced Out Model also allows generating the Housing Affordability Pyramid. The pyramid shows that, as the price of a home goes up, there are fewer and fewer households in each tier who are able to afford it. For a brief explanation of the pyramid, view the introduction to the affordability pyramid.

Prospective home buyers are also adversely affected when interest rates rise. The Priced Out Model estimates that approximately 1.1 million U.S. households are priced out of the market for a median-priced new home by a quarter point increase in the rate on a 30-year fixed rate mortgage. View the number of households priced-out by interest rate increases.

A related issue is the difference between builder costs and the final price of a new home. When construction-related fees are imposed, the final price of the home to the buyers will usually go up by more than the increase in the government fee, as other builder costs, such as financing and broker commissions, also rise. NAHB estimates that the add-on charges range from 0 percent if a fee is imposed directly on buyers to 39 percent if cost is incurred when applying for site development approval. View NAHB’s estimates of add-on charges on building fees.