Small Rise in Home Prices and Mortgage Rates Has Big Effect on Affordability

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It takes only a small uptick in home prices and mortgage rates to price more than 1 million potential home buyers out of the market for a median-priced home. For example, $1,000 might sound insignificant when compared to the overall price of a new home. But that relatively small amount has a surprisingly big impact on affordability. NAHB economists recently determined that for every $1,000 increase in the cost of today’s median U.S. home price, 127,560 American households are priced out and would no longer be able to afford it. In other words, based on their incomes, 127,560 households would be able to qualify for a mortgage to purchase the home before the price increase, but not afterward. Those numbers are even more staggering when looking at potential interest rate increases. It takes only a quarter-point rise in the rate for a 30-year fixed-rate mortgage to price approximately 1 million households out of that segment of the market and force them to set their sights lower than a median-priced home –- or delay their home purchase altogether. NAHB economist Na Zhao provides further analysis in this Eye on Housing blog post. More information, including priced out estimates for every state and over 300 metropolitan areas, and additional details about the methodology of the study, are available here.

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