Households Priced-Out by Higher House Prices and Interest Rates

Economics
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Contact: Na Zhao
nzhao@nahb.org
(202) 266-8398

Increases in house prices and interest rates have an obvious impact on housing affordability. Often, stakeholders are interested in increases due to changes in government regulation. NAHB’s “priced-out" methodology provides a convenient way of putting these changes in context.

Price Increases

NAHB’s latest estimates show that, nationally, 75.1 million households (roughly 60% of all U.S. households) are already unable to afford the median-priced ($346,577) new home.

A $1,000 increase in the price of that median-priced new home will further price 153,967 U.S. households out of the market. Based on their incomes and standard underwriting criteria, these households would be able to qualify for a mortgage to purchase the home before the price increase, but not afterward.

Similar priced-out estimates are available for individual states and over 300 metro areas.

Affordability Pyramid

The priced-out methodology can also be used to generate a 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 (see also the description of the pyramid).

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, changes in regulations, or other factors 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, broker commissions and margins required to get construction loans underwritten also rise. NAHB estimates that these add-on charges range from 0% if a fee is imposed directly on buyers, to 30% if cost is incurred when applying for site development approval.

Interest Rate Increases

Prospective home buyers are also adversely affected when interest rates rise. NAHB’s priced-out estimates show that, depending on the starting rate, a quarter-point increase in the rate of 2.8% with zero points on a 30-year fixed-rate mortgage can price over 1.3 million U.S. households out of the market for the median-priced new home.

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