Housing Affordability Crisis Explained in One Graph

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Applying conventional underwriting standards that the cost of a mortgage, property taxes and property insurance should not exceed 28% of household income, NAHB economists have calculated how many households have enough income to afford a home at various price thresholds. The housing affordability pyramid shown below reveals that 63 million households out of a total of 120 million are unable to afford a $250,000 home. At the base of the pyramid are 25.4 million U.S. households with insufficient incomes to be able to afford a $100,000 home. The pyramid’s second step consists of 20.0 million with enough income to afford $100,000 but not $175,000, and so on up the pyramid. Adding up the bottom three steps shows that there are 63 million households who cannot afford a $250,000 home. This helps put affordability concerns into perspective and goes a long way toward explaining the result published in last September’s Eye on Housing post, that 49% of home buyers are looking to buy homes priced under $250,000. The top of the pyramid shows that 7.2 million households have enough income to buy a $850,000 home, and 2.2 million even have enough for a home priced at $1,550,000. But market analysts should never focus on this to the exclusion of the wider steps that support the pyramid’s base. In January, NAHB released its new Priced-Out Estimates for 2020. A previous Eye on Housing post discussed the often-cited estimate that a $1,000 increase in the price of a median-priced new home will price 158,857 U.S. households out of the market for the home. A second post discussed the related estimate that a quarter point increase in the mortgage rate will price out 1.3 million. For a more complete description of the methodology underpinning NAHB’s latest priced-out estimates, please consult the full study published in HousingEconomics.com

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