Housing Affordability Explained in One Pyramid

Filed in Economics, Housing Affordability, Trends by on March 10, 2021 8 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 56.5 million households out of a total of 122.9 million are unable to afford a $250,000 home.

At the base of the pyramid are 21.1 million U.S. households with insufficient incomes to be able to afford a $100,000 home. The pyramid’s second step consists of 19 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 56.5 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 a September 2019 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 10 million households have enough income to buy a $850,000 home, and 3 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.

On March 1, NAHB released its new Priced-Out Estimates for 2021, which shows that a $1,000 increase in the price of a median-priced new home will price 153,967 U.S. households out of the market for the home.

Prospective home buyers also are 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.

NAHB economist Na Zhao provides more analysis in this Eye on Housing blog post.

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Comments (8)

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  1. FRC says:

    It’s odd how small these percentages are. And in addition the housing prices are increasing. Thanks for sharing very informative.

  2. Dan Miller says:

    What is doesn’t show is the affordability of the home based on a persons wealth. Example: My income may show that I can only afford a $250k home but because I have that much in equity in my last home I can afford a $500k home. I believe the wealth from other states moving to lower costs states are driving the home prices up.

  3. Doug Kresge says:

    The very first line is not true.

    “Applying conventional underwriting standards that the cost of a mortgage, property taxes and property insurance should not exceed 28% of household income,”

    I do conventional loans all the time where the PITI is over 28%. So this makes me question the rest of the article.

  4. David R Cornelius says:

    Up next? A 35 or 40 year fixed Fannie Mae mortgage.

    • Dwayne Culp says:

      A 35 or 40 year fixed mortgage will not significantly add to the number of people that can afford a home because per 100K, it only decreases the monthly mortgage by $37 or $64. Of course if rates go back to more common 6% rather than 3%, The savings get even lower.

  5. Nebo Carter says:

    A good chart to help understand the need for more affordable housing for 57 million American Families. Will it happen?

  6. Greg Cantori says:

    All the more reason to support Accessory Dwelling Units as a by-right building opportunity for homeowners including movable tiny homes. Also why Single Family Zoning needs to become neighborhood residental. Allowing duplexes

  7. Would also be nice to see a similar chart for rentals.

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