Income Growth Helps Mute Existing Affordability Constraints
Despite solid income gains and lower home prices, Americans still continue to face major housing affordability challenges, according to the latest data from the National Association of Home Builders (NAHB)/Wells Fargo Cost of Housing Index (CHI). The CHI results from the first quarter of 2025 show that a family earning the nation’s median income of $104,200 needed 36% of its income to cover the mortgage payment on a median-priced new home. Low-income families, defined as those earning only 50% of median income, would have to spend 72% of their earnings to pay for the same new home.
The figures track closely for the purchase of existing homes in the U.S. as well. A typical family would have to pay 35% of their income for a median-priced existing home while a low-income family would need to pay 70% of their earnings to make the same mortgage payment.
“While affordability registered slight gains in the first quarter, the Cost of Housing Index clearly shows the need for policymakers to take action to address the nation’s housing affordability crisis by enacting policies that will allow builders to increase the nation’s housing supply,” said NAHB Chairman Buddy Hughes, a home builder and developer from Lexington, N.C. “Eliminating burdensome regulations, ending tariffs on Canadian lumber and other building materials, providing funding to promote careers in the skilled trades and expediting approvals for affordable projects will allow builders to construct more homes.”
The percentage of a family’s income needed to purchase a new home fell from 38% in the fourth quarter of 2024 to 36% in the first quarter of this year as a result of a 6.5% rise in median family income and a 1% decline in the median price of a new home. The low-income CHI also fell from 76% to 72% over the same period.
Meanwhile, affordability of existing homes edged higher for both median- and low-income families between the fourth quarter of 2024 and first quarter of 2025. The CHI indices were 35% and 70% in the first quarter vs 37% and 74%, respectively, in the fourth quarter. The uptick in affordability was due to the increase in median income and a 2% drop in median existing home prices from the fourth quarter of 2024 to the first quarter of 2025.
“The latest CHI data illustrate that far too many households remain cost burdened and highlight the need for policymakers to remove regulatory roadblocks, address economic uncertainty and provide a better business climate that will help builders to construct more attainable, affordable housing,” said NAHB Chief Economist Robert Dietz.
The NAHB/Wells Fargo Cost of Housing Index, or CHI, is a quarterly analysis of housing costs in the U.S. and at the metropolitan area level. The CHI represents the share of a typical family’s income needed to make a typical mortgage payment. The mortgage payment is calculated by taking median home prices, assuming a 10% down payment, and adding taxes, insurance and PMI. Median family income is published by the Department of Housing and Urban Development. A low-income CHI is also calculated for families earning only 50% of the area’s median income.
The U.S. data for the percentage of earnings needed to purchase a new home in the first quarter is based on a national median new home price of $416,900 and median income of $104,200. The first quarter median new home price is down slightly from $419,200 in the fourth quarter. The corresponding price for an existing home in the first quarter is $402,300, down from the 410,100 in the previous quarter. The average 30-year mortgage rate increased from 6.72% in the fourth quarter to 6.91% in the first quarter.
HUD defines cost-burdened families as those “who pay more than 30% of their income for housing” and a severe cost burden is defined as paying more than 50% of one’s income on housing.
The CHI breaks down the percentage of a family’s income needed to make a mortgage payment on an existing home in 175 metropolitan areas based on the local median home price and median income. Percentages are also calculated for low-income families in all of these markets.
In nine out of 175 markets in the first quarter, the typical family is severely cost-burdened (must pay more than 50% of their income on a median-priced existing home). In 75 other markets, such families are cost-burdened (need to pay between 31% and 50%). There are 91 markets where the CHI is 30% of earnings or lower.
The Top 5 Severely Cost-Burdened Markets
San Jose-Sunnyvale-Santa Clara, Calif., was the most severely cost-burdened market on the CHI, where 88% of a typical family’s income is needed to make a mortgage payment on an existing home. This was followed by:
- Urban Honolulu, Hawaii (74%)
- San Diego-Chula Vista-Carlsbad, Calif. (68%)
- Naples-Marco Island, Fla. (66%)
- San Francisco-Oakland-Fremont, Calif. (64%)
Low-income families would have to pay between 128% and 176% of their income in all five of the above markets to cover a mortgage.
The Top 5 Least Cost-Burdened Markets
By contrast, Elmira, N.Y., was the least cost-burdened markets on the CHI, where typical families needed to spend just 15% of their income to pay for a mortgage on an existing home. Rounding out the least burdened markets are:
- Decatur, Ill. (16%)
- Peoria, Ill. (16%)
- Springfield, Ill. (16%)
- Davenport-Moline-Rock Island, Iowa-Ill. (17%)
Low-income families in these markets would have to pay between 31% and 35% of their income to cover the mortgage payment for a median-priced existing home.
Please visit nahb.org/chi for tables and details.