Rising home prices and interest rates can negatively affect housing affordability, as shown in recent NAHB reports related to its 2022 Priced-Out Estimates. However, a large portion of the roughly 69% of U.S. households that cannot afford a new median-priced home are not even able to afford a home that costs a fraction of that price.
The NAHB housing affordability pyramid notes how many households have enough income to afford homes at various price thresholds. The pyramid uses the same standard underwriting criterion as the priced-out estimates to determine affordability: that the sum of mortgage payments, property taxes, home owners and private mortgage insurance premiums should be no more than 28% of the household income.
Based on those factors, the minimum income required to purchase a $150,000 home is $36,074. In 2022, about 36 million U.S. households are estimated to have incomes at or below that threshold. Another 24.4 million can only afford a home priced between $150,000 and $250,000 (the second step on the pyramid). Each step represents a maximum affordable price range for fewer and fewer households.
NAHB Senior Economist Na Zhao shares more in this Eye on Housing post.