Are we in trouble? 69% of the nation cannot afford a new median-priced home because their incomes are insufficient to meet typical underwriting criteria.

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Home Price Gains Have Outsized Affordability Impacts

According to the National Association of Homebuilders (NAHB), 87.5 million households, 69% of the nation’s total, cannot afford a new median-priced home because their incomes are insufficient to meet typical underwriting criteria. The data is taken from NAHB‘s annual “priced-out estimates,” which indicate how rising prices and interest rates influence affordability.

Na Zhao, the study’s author, said that affordability was evaluated using a median new home price of $412,506 and a 3.5% mortgage rate, resulting in a $1,822 monthly mortgage payment. He calculated that the median household income required to qualify for a mortgage is $99,205 per year, based on those factors and a fixed price of $493 for taxes and insurance. In this case, 39.205 million households would be able to buy the median-priced home presently. However, to buy a $150,000 property using traditional assumptions and underwriting criteria, an income of $36,074 is required, yet over 36 million households earn less than that.

Confidence Slips as Builders Face Big Material Delays

In February, builder confidence suffered yet another setback. The NAHB Housing Market Index (HMI) fell one point to 82 for the month, according to the National Association of Home Builders (NAHB). It also dropped one point in January.

Builders are dealing with continued construction material production shortages, according to NAHB Chief Economist Robert Dietz. He said that “These delivery delays are raising construction costs and pricing prospective buyers out of the market. Residential construction costs are up 21 percent on a year-over-year basis. Higher interest rates in 2022 will further reduce housing affordability even as demand remains solid due to a lack of resale inventory.” However, as it has done for the past five months, the index shows steady levels at or above the 80-point line.

Out-of-Town Home Buyers Will Pay 30% More Than Locals in Hottest U.S. Markets

People migrating to some of the country’s hottest real estate markets have about 30% more money to spend on homes than locals, emphasizing housing shortages in the country’s most competitive cities. According to a new analysis from listing site Redfin Corp, the shift toward remote work has allowed many Americans to sell their homes in more expensive locations and move to cheaper ones, providing them a larger budget than locals. For instance, newcomers to Nashville, Tennessee, had $736,868 to spend on homes in 2021, 28.5 percent more than the $573,382 average budget for locals. 

In the aftermath of the Covid-19 pandemic, low mortgage rates and a surge of remote-working alternatives have fuelled demand for properties in smaller cities. As purchasers fight for a diminishing number of available properties, bidding wars emerge across the U.S. housing market, particularly for higher-end real estate.

Next week’s potential market-moving reports are:

  • Monday, February 21st – No Report   
  • Tuesday, February 22nd – Home Price Index
  • Wednesday, February 23rd – No Report
  • Thursday, February 24th – Initial Jobless Claims, Building Permits, New Home Sales
  • Friday, February 25th – Core Inflation, Real Consumer Spending

As your mortgage and real estate professional, I am happy to assist you with any information you may need regarding mortgage or real estate trends.  I welcome the opportunity to serve you in any way I possibly can. Please feel free to reach me at (800) 216-1047.