NAHB/Wells Fargo Debut New Cost of Housing Index

2024-05-23T09:19:22-05:00

A new quarterly Cost of Housing Index (CHI) highlights the burden that housing costs represent for middle and low-income families. In its inaugural release for the first quarter of 2024, CHI revealed that a typical family in the U.S. must spend 38% of its income to cover the mortgage payment on a median priced new single-family home. Low-income families, defined as those earning only 50% of median income, would have to spend 77% 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 36% of its income for a median-priced existing home, while a low-income family would need to pay 71% of its earnings to make the same mortgage payment. CHI results in the first quarter are based on a national median new home price of $420,800 and median income of $97,800. The corresponding price for an existing home is $389,400. Additionally, CHI breaks down the percentage of a family’s income needed to make a mortgage payment on an existing home in 176 metropolitan areas based on the local median home price and median income. Percentages are also calculated for low-income families in these markets. In eight out of 176 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 80 other markets, such families are cost-burdened (need to pay between 31% and 50%). There are 88 markets where the CHI is 30% of earnings or lower. The Top Five Severely Cost-Burdened Markets San Jose-Sunnyvale-Santa Clara, Calif. was the most severely cost-burdened market on the CHI, where 84% of a typical family’s income is needed to make a mortgage payment on an existing home. This was followed by: •           Urban Honolulu, Hawaii (73%)•           Naples-Marco Island, Fla. (71%)•           San Diego-Chula Vista-Carlsbad, Calif. (70%)•           San Francisco-Oakland-Berkeley, Calif. (69%) Low-income families would have to pay between 138% and 168% of their income in all five of the above markets to cover a mortgage. The Top Five Least Cost-Burdened Markets By contrast, Peoria and Decatur, Ill. tied as the least cost-burdened markets on the CHI, where families needed to spend just 14% of their income to pay for a mortgage on an existing home. Rounding out the least burdened markets are: •           Cumberland, Md.-W.Va (15%)•           Springfield, Ill. (16%)•           Elmira, N.Y. (16%) Low-income families in these markets would have to pay between 28% and 32% of their income to cover the mortgage payment for a median-priced existing home. Visit nahb.org/chi for tables and details. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

NAHB/Wells Fargo Debut New Cost of Housing Index2024-05-23T09:19:22-05:00

Affordability Pyramid Shows 64.8 Million Households Cannot Buy a $250,000 Home

2024-05-13T13:22:37-05:00

As described in a previous post, NAHB recently released its 2024 Priced-Out Estimates showing 103.5 million households are not able to afford a median priced new home and an additional 106,031 households would be priced out if the price goes up by $1,000. This post focuses on the related U.S. housing affordability pyramid, showing how many households have enough income to afford homes at various price thresholds. NAHB uses the standard underwriting assumptions to create a housing affordability pyramid showing the number of households able to purchase a home at each step. For example, the minimum income required to purchase a $150,000 home at the mortgage rate of 6.5% is $45,975. In 2024, about 40.5 million households in the U.S. are estimated to have incomes no more than that threshold and, therefore, can only afford to buy homes priced no more than $150,000. These 40.5 million households form the bottom step of the pyramid (Figure 1). Of the remaining households who can afford a home priced at $150,000, 26.1 million can only afford to pay a top price of somewhere between $150,000 and $250,000 (the second step on the pyramid). Each step represents a maximum affordable price range for fewer and fewer households. Housing affordability is a great concern for households with annual income at the lower end of the distribution. The top step of the pyramid shows that around 3 million households can buy a home priced above $1.6 million. While this market is significant and important, market analysts should never only focus on those households to the exclusion of the larger number of Americans with more modest incomes that support the pyramid’s base. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Affordability Pyramid Shows 64.8 Million Households Cannot Buy a $250,000 Home2024-05-13T13:22:37-05:00

At 2022 Rates, 10 Million More Households Could Afford a New Home

2024-05-08T10:18:23-05:00

According to the latest press release from Freddie Mac, the average rate on a 30-year fixed-rate mortgage has now risen to approximately 7.25%. As the data posted on NAHB’s priced-out web page shows, at this rate only about 27.5 million (out of a total of 134.7 million) U.S. households could afford to buy a median-priced new home, based on their incomes and standard underwriting criteria. For context, consider that the last time the average mortgage rate was under 6.25% was in mid-February of 2023. If that interest rate prevailed now, 4.5 million more households (for a total of 32.0 million) could afford the median new home. A year further back, prior to mid-February of 2022, the average mortgage rate was consistently under 5.00%. At a rate of 5.00%, 37.7 million households could afford the median new home. In short,10.2 million U.S. households are currently being priced out of the market by the average mortgage rate sitting 225 basis points higher than it was in February 2022. A recent post, How Rising Costs Affect Home Affordability,  showed how many households are priced out of the market by a $1,000 increase in the price of the median new home. The analysis is based on the standard underwriting criterion that the sum of mortgage payments (principal and interest), property taxes, homeowners and private mortgage insurance premiums (PITI) during the first year should be no more than 28 percent of the home buyer’s income. The advantage of this methodology is that it requires only a starting house price, household income distribution, and characteristics of the typical mortgage. A household income distribution is available for virtually any part of the country from the Census Bureau’s American Community Survey. Typical mortgage characteristics and other details are discussed both in NAHB’s April 1 Special Study and on the priced-out web page. This same methodology can be used to determine the number of U.S. household priced out of the market by a change in interest rates, rather than house prices. Results of these calculations are reproduced from the special study and web page in the table below: Finding the impact of a change in the mortgage rate (in either direction) from this table is relatively straightforward. For example, the 7.25%-mortgage-rate row shows approximately 27.5 million households able to afford the median-priced new home. If the rate fell back to 6.25%, the table shows an additional 4.5 million (for a total of approximately 32.0 million) households would be priced into the market. This change is particularly relevant, as NAHB is currently projecting that the average mortgage rate will be near 6.25% by the end of 2024—although there is considerable uncertainty around this number, due largely to uncertainty about what monetary policy the Federal Reserve will find necessary to contain inflation. Readers can refer back to the above table to track the impact actual changes in mortgage rates are having on affordability of new homes over the rest of the year. As many analysts have noted, interest rates and house prices interact with each other to determine new home affordability. For example, if the costs of producing homes and the resulting prices to buyers were reduced (for instance, by adopting some of the measures in NAHB’s 10-point plan to lower shelter inflation), more than 4.5 million households would be priced into the market by reducing interest rates from 7.25% to 6.25%. Similarly, if interest rates were lower, a larger number of households would be priced into the market by a given reduction in house prices. This occurs because at lower prices or interest rates, the starting point is in a denser part of the U.S. income distribution, where there are more households to be priced into (or out of) the market. This point will be illustrated graphically in a forthcoming post on NAHB’s 2024 housing affordability pyramid.  Discover more from Eye On Housing Subscribe to get the latest posts to your email.

At 2022 Rates, 10 Million More Households Could Afford a New Home2024-05-08T10:18:23-05:00

Lowest Homeownership Rate for Younger Householders in Two Years

2024-04-30T13:18:51-05:00

The Census Bureau’s Housing Vacancy Survey (CPS/HVS) reported the U.S. homeownership rate declined to 65.6% in the first quarter of 2024. This is 0.1 percentage points lower from the prior quarter reading (65.7%) and is the lowest rate in the last two years. The homeownership rate remains below the 25-year average rate of 66.4%, a multidecade low for housing affordability conditions. The homeownership rate for householders ages less than 35 decreased to 37.7% in the first quarter of 2024. Amidst elevated mortgage interest rates and tight housing supply, affordability is declining for first-time homebuyers. This age group, who are particularly sensitive to mortgage rates and the inventory of entry-level homes, saw the largest decline among all age categories. The national rental vacancy rate stayed at 6.6% for the first quarter of 2024, and the homeowner vacancy rate inched down to 0.8%. The homeowner vacancy rate is still hovering near the lowest rate in the survey’s 67-year history (0.7%). The homeownership rates for all age groups decreased over the last year, except groups aged 45-54 and 55-64 years. The homeownership rates among householders aged less than 35 experienced a 1.6 percentage points decrease from 39.3% to 37.7%. Followed by the 35-44 age group with a 1.2 percentage points decrease from 62.6% to 61.4%. Next, were households aged 65 years and over, who experienced a modest 0.1 percentage point decline. However, homeownership rates of householders aged 45-54 increased to 70.8% in the first quarter of 2024 from 70.1% a year ago. The homeownership rate of households aged 55-64 years edged up to 76.3% from a year ago. The housing stock-based HVS revealed that the count of total households increased to 131.1 million in the first quarter of 2024 from 129.6 million a year ago. The gains are largely due to gains in both renter household formation (907,000 increase), and owner households (907,000 increase). Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Lowest Homeownership Rate for Younger Householders in Two Years2024-04-30T13:18:51-05:00

How Lumber Prices are Affecting Homebuilders

2021-05-13T12:28:42-05:00

They say a picture can tell a thousand words. Well, this new visual representation of the impact of lumber pricing on homebuilders certainly fits. Published on May 8th by Visual Capitalist, the amazing infographic shows the impact of lumber

How Lumber Prices are Affecting Homebuilders2021-05-13T12:28:42-05:00

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