Housing Affordability Crisis Explained in One Graph

Filed in Affordability, Economics by on February 13, 2020 19 Comments

Applying conventional underwriting standards that the cost of a mortgage, property taxes and property insurance should not exceed 28% of household income, NAHB economists have calculated how many households have enough income to afford a home at various price thresholds.

The housing affordability pyramid shown below reveals that 63 million households out of a total of 120 million are unable to afford a $250,000 home.

At the base of the pyramid are 25.4 million U.S. households with insufficient incomes to be able to afford a $100,000 home. The pyramid’s second step consists of 20.0 million with enough income to afford $100,000 but not $175,000, and so on up the pyramid.

Adding up the bottom three steps shows that there are 63 million households who cannot afford a $250,000 home. This helps put affordability concerns into perspective and goes a long way toward explaining the result published in last September’s Eye on Housing post, that 49% of home buyers are looking to buy homes priced under $250,000.

The top of the pyramid shows that 7.2 million households have enough income to buy a $850,000 home, and 2.2 million even have enough for a home priced at $1,550,000. But market analysts should never focus on this to the exclusion of the wider steps that support the pyramid’s base.

In January, NAHB released its new Priced-Out Estimates for 2020. A previous Eye on Housing post discussed the often-cited estimate that a $1,000 increase in the price of a median-priced new home will price 158,857 U.S. households out of the market for the home. A second post discussed the related estimate that a quarter point increase in the mortgage rate will price out 1.3 million.

For a more complete description of the methodology underpinning NAHB’s latest priced-out estimates, please consult the full study published in HousingEconomics.com

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  1. Melanie Lawton says:

    Excellent graph. Too bad there is no staff contact info or link to the graph in high resolution so HBAs can reprint it when lobbying state regulators on electrical or energy codes and affordability.

  2. Josh says:

    I do hope people realize that the largest factor in increasing home prices, at least in the midwest region is the cost of land. I’m paying 18% more this year than 2 years ago, for lower quality lots. The cost to develop is insane

    • John Bitely says:

      Josh,
      here in Michigan it isn’t always the raw land that is big cost but the increasing regulations to develop, NIMBY, and zoning that is designed to make developing harder and less lots. Recently had a rural township zone water and sewer, but they don’t have any public water or sewer in the township and haven’t done a study for a plan for any for 20 years.

    • Marty says:

      Yes, and also labor is in short supply, too busy, and/or is changing to subs who demand more pay for jobs that 2 years ago was manned by a much broader pool of individuals.

  3. Nebo Carter says:

    Thank you for publishing relevant info that helps guide the future for home building in the USA.

  4. Chad says:

    Our small Texas city is about to impose “Impact Fees” for new construction. $200k home on a 30 year note will add $31/mo for $5,700 worth of impact fees to our new home buyers. Wonder what the graph would look like after adding these Impact Fees in? How many more buyers would it push out?

  5. John Green says:

    John Green: I am a builder developer here on Bainbridge Island WA. The average lot here is $200,000.00 . Land prices have risen because of the huge Tech Market developing in Seattle. One industry, has pushed up the price of everything, even buying new cars…….
    I look at many parts of the country, and come to the conclusion, that education needs a big boost for young people to get good paying jobs. In addition, where there are industries such as we have here in Seattle, local government needs to step in and levy tax’s, that are appropriate to the kind of industry drawing folks that cannot afford to live or rent in the area. We also have, last count, about 12,000 homeless folks living on the streets and camps along the side of fwy’s. I see the need for better planning, better education locally, to perhaps slow down the decline….it is only going to get worse………..thank you for this opportunity to comment.

  6. Don Druliner says:

    20 states have median priced homes under 250/k, and sufficient median incomes to purchase. The gap in home ownership is affordability in the urban and coastal areas. $15 per hour in Georgia and Alabama makes middle class well off. On the coasts low wage workers are hopeless.

  7. Brian says:

    Great graph! The situation particularly bad in high cost cities like San Francisco, New York, Washington D.C., Seattle and Boston. In San Francisco our median home price is $1,299,000 and it’s $996,000 for the whole metro area. It’s out of control and our regulators are constantly increasing fees and adding new mandates.

  8. Paul says:

    The problem is city & county leaders raising taxes & special assessment making harder for First time homebuyers and new homebuyers not affordable any more Wake up!

  9. Bill says:

    Awesome info and really insightful comments.
    Thanks NAHB for providing this graph and article.

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