Pyramid Illustrates Housing Affordability Crisis
NAHB has updated its "housing affordability pyramid" for 2023, and the latest data show that 64.8 million households out of a total of 132.5 million are unable to afford a $250,000 home.
The pyramid is based on conventional underwriting standards that assume the cost of a mortgage, property taxes and property insurance should not exceed 28% of household income. Based on this methodology, NAHB economists have calculated how many households have enough income to afford a home at various price thresholds.
At the base of the pyramid are 39 million U.S. households with insufficient incomes to be able to afford a $150,000 home.
The pyramid's second step consists of 25.8 million with enough income to afford a top price somewhere between $150,000 and $250,000. Adding up the bottom two rungs shows that there are 64.8 million households who cannot afford a $250,000 home.
The nationwide median price of a new single-family home is $425,786, meaning half of all new homes sold in the U.S. cost more than this figure and half cost less. A total of 96.5 million households — roughly 73% of all U.S. households — cannot afford this median-priced new home.
This helps put affordability concerns into perspective and goes a long way toward explaining why housing affordability now stands at a more than 10-year low.
The top of the pyramid shows that 9.7 million households have enough income to buy a $850,000 home (adding up the top three rungs), and 2.9 million even have enough for a home priced at $1.55 million. But market analysts should never focus on this to the exclusion of the wider steps that support the pyramid's base.
On March 2, NAHB released its new Priced-Out Estimates for 2023, which shows that a $1,000 increase in the price of a median-priced new home will price 140,436 U.S. households out of the market for the home.
Prospective home buyers also are adversely affected when interest rates rise. NAHB's priced-out estimates show that 1.28 million households are priced out of the market for a new median priced home at $425,786 when interest rates rise a quarter-point from 6.25% to 6.5%. An increase from 6.5% to 6.75% prices approximately 1.29 million households out of the market.