NAHB recently released its 2025 Priced-Out Analysis, highlighting the housing affordability challenge. While previous posts discussed the impacts of rising home prices and interest rates on affordability, this post focuses on the related U.S. housing affordability pyramid. The pyramid reveals that 70% of households (94 million) cannot afford a $400,000 home, while the estimated median price of a new home is around $460,000 in 2025. The housing affordability pyramid illustrates the number of households able to purchase a home at various price steps. Each step represents the number of households that can only afford homes within that specific price range. The largest share of households falls within the first step, where homes are priced under $200,000. As home prices increase, fewer and fewer households can afford the next price level, with the highest-priced homes—those over $2 million—having the smallest number of potential buyers. Housing affordability remains a critical challenge for households with income at the lower end of the spectrum. The pyramid is based on income thresholds and underwriting standards. Under these assumptions, the minimum income required to purchase a $200,000 home at the mortgage rate of 6.5% is $61,487. In 2025, about 52.87 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 up to $200,000. These 52.87 million households form the bottom step of the pyramid. Of the remaining households who can afford a home priced at $200,000, 23.53 million can only afford to pay a top price of somewhere between $200,000 and $300,000. These households make up the second step on the pyramid. Each subsequent step narrows further, reflecting the shrinking number of households that can afford increasingly expensive homes. It is worthwhile to compare the number of households that can afford homes at various price levels and the number of owner-occupied homes available in those ranges (excludes homes built-for-rent), as shown in Figure 2. For example, while around 53 million households can afford a home priced at $200,000 or less, there are only 22 million owner-occupied homes valued in this price range. This trend continues in the $200,000 to $300,000 price range, where the number of households that can afford homes is much higher than the number of housing units in that range. These imbalances show a shortage of affordable housing. Discover more from Eye On Housing Subscribe to get the latest posts sent to your email.

As housing affordability remains a critical challenge across the country, mortgage rates continue to play a central role in shaping homebuying power. Mortgage rates stayed elevated throughout 2023 and early 2024. Recent data, however, shows a modest decline in mortgage rates. Even slight declines can have a significant impact on housing affordability, pricing more households back into the market. New NAHB Priced-Out Estimates show how home price increases affect housing affordability in 2025. This post presents details regarding how interest rates affect the number of households that can afford a median priced new home. At the beginning of 2025, with the average 30-year fixed mortgage rate at 7%, around 31.5 million households could afford a median-priced home at $459,826. This requires a household income of $147,433 by the front-end underwriting standards[1]. In contrast, if the average mortgage rates had remained at the recent peak of 7.62% in October 2023, only 28.7 million households would have qualified. This 62-basis point decline has effectively priced 2.8 million additional households into the market, expanding homeownership opportunities. The table below shows how affordability changes with each 25 basis-point increase in interest rates, from 3.75% to 8.25% for a median-priced home at $459,826. The minimum required income with a 3.75% mortgage rate is $110,270. In contrast, a mortgage rate of 8.25%, increases the required income to $163,068, pushing millions of households out of the market. As rates climb higher, the priced-out effect diminishes. When interest rates increase from 6.5% to 6.75%, around 1.13 million households are priced out of the market, unable to meet the higher income threshold required to afford the increased monthly payments. However, an increase from 7.75% to 8% would squeeze about 850,000 households out of the market. This exemplifies that when interest rates are relatively low, a 25 basis-point increase has a much larger impact. It is because it affects a broader portion of households in the middle of the income distribution. For example, if the mortgage interest rate decreases from 5.25% to 5%, around 1.5 million more households will qualify the mortgage for the new homes at the median price of $459,826. This indicates lower interest rates can unlock homeownership opportunities for a substantial number of households. [1] . The sum of monthly payment, including the principal amount, loan interest, property tax, homeowners’ property and private mortgage insurance premiums (PITI), is no more than 28 percent of monthly gross household income. Discover more from Eye On Housing Subscribe to get the latest posts sent to your email.