NAHB report: Nearly seven in 10 households can’t afford new median-priced home

Rising home prices and interest rates are taking a terrible toll on housing affordability, with 87.5 million households — or roughly 69% of all U.S. households — unable to afford a new median priced home, according to a new report from the National Association of Home Builders (NAHB).

In other words, seven out of 10 households lack the income to qualify for a mortgage under standard underwriting criteria.

The underwriting criterion used to determine affordability is that the sum of mortgage payments, property taxes, home owners and private mortgage insurance premiums (PITI) during the first year is no more than 28% of the household’s income. Key assumptions include a 10% down payment, a 30-year fixed rate mortgage at an interest rate of 3.5%, and an annual premium starting at 73 basis points for private mortgage insurance.

These staggering statistics are part of NAHB’s recently released 2022 priced-out estimates, which further show that if the median new home price goes up by $1,000, an additional 117,932 households would be priced out of the market. These 117,932 households would qualify for the mortgage before the price increase, but not afterward.

Among all the states, California registered the largest number of households that would be priced out of the market. A $1,000 price increase would push 12,411 households out of the market in the Golden State, followed by Texas (11,108), and Florida (6,931). It should be noted that these are the country’s three most populous states.

The metropolitan area with the largest priced out effect, in terms of absolute numbers, is New York-Newark-Jersey City, N.Y.-N.J.-Pa., where 4,734 households would be squeezed out of the market for a new media-priced if the price increases by $1,000.

Based on Iowa’s median new home price of $371,169, the report indicates that 390,191 Iowa households would be able to afford a new home, while 956,864 households would not. A price increase of $1,000 would price 1,943 Iowa households out of the market, according to the report.

The report also indicates that in Cedar Rapids, 69,918 households would be able to afford a new home based on the median new home price of $235,396, while 52,568 households would not, and a $1,000 increase would price 249 households out of the market. In Iowa City, based on a median new home price of $374,690, 23,645 households would be able to afford a new home, while 47,993 would not, and a $1,000 price increase would push 97 prospective buyers out of the market.