Households Priced-Out by Higher House Prices and Interest Rates

Government regulations have a clear and direct impact on housing affordability by influencing house prices and interest rates. NAHB’s “priced-out model” closely examines how and where those variables can affect affordability.

Price Increases

Nationally, for every $1,000 increase in the price of a home, about 152,903 households are priced out of the market for a median-priced new home. These are the households that can qualify for a mortgage before a $1,000 increase but not afterwards. The degree of impact varies between regions and depends largely on population and income distribution of each metro area.

NAHB recently updated the new 2016 priced out estimates for the individual states and more than 300 metro areas. The priced-out model also generates the housing affordability pyramid, which shows that as the price of a home increases, the number of households in each tier that are able to afford it, decreases.

Interest Rate Increases

Prospective home buyers are also adversely affected when interest rates rise. The priced-out model estimates that with a quarter-point increase in the rate on a 30-year fixed rate mortgage, as many as 1.2 million U.S. households will be priced out of the market for a median-priced new home

Builder Costs and Home Prices

A related issue is the difference between builder costs and the final price of a new home. When government-imposed fees or a changes in regulations increase costs for a builder or developer, the final price of the home to the buyers will usually go up by more than the increase in the costs, as related costs, such as financing and broker commissions, also rise.

NAHB estimates the add-on charges range from zero percent if a fee is imposed directly on buyers, to 40 percent if cost is incurred when applying for site development approval.