Just 31% of households can now afford to buy a newly built home, according to the National Association of Home Builders.
Affordability of New Home Construction Dropped -10% in 2021
The National Association of Home Builders (NAHB) estimated that in early 2021, more than 50M households could afford to purchase a newly built home.
Today, in early 2022, the NAHB estimates that only 39M US households could afford to buy a newly built home. This means that over this past year, one in ten households have been priced out of a newly constructed home.
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These figures come to us via the NAHB’s latest “priced out” report. This same report also indicates that 69% of households in the US cannot a median-priced new home in their neighborhood/area.
New Home Prices Substantially Up Over Past Year
At the end of December 2021, the average sales price of a newly built home was $457,300, according to the US Census Bureau. This price of $457,300 represents a price increase of more than +19% y/y.
The result? Sales of newly built homes were down -14%.
Meanwhile, “inventory in the existing sales market is only one-third the level of the new home market, relative to sales, and that is putting extra upward pressure on new home prices,” said Ian Shepherdson, chief economist with Pantheon Macroeconomics.
Also at the end of December 2021, the median existing-home price was $358,000, an increase of +15.8% y/y, according to the National Association of REALTORS® (NAR).
We can all do the math here…$457,300 is nearly $100,000 more than $358,000.
Rising Mortgage Rates Also Playing a Role in Affordability Wall
NAHB Senior Economist Na Zhao said, “If mortgage interest (rates) increase (as they topped 4% last week), the monthly mortgage payments will rise as well, and therefore higher household income thresholds are needed to qualify for a mortgage loan.”
The NAHB considers a total mortgage payment for a new home (principal, interest, taxes and insurance) that exceeds +28% of a household’s gross income to be unaffordable.
The NAHB estimates that if new home prices increase by just $1,000, an additional 118,000 households would be priced out of a newly built home. For households earning lower incomes, buying a new home would not even be an option.
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This latest “priced out” report from the NAHB states, “Housing affordability is a great concern for households with annual incomes at the lower end of the distribution.”
Thanks to the National Association of Home Builders and Inman.