NAHB Economics recently released its 2016 “Priced Out” Estimates showing that, nationally, a $1,000 increase in the median new home price (triggered, for example, by additional regulation) will leave 152,903 households priced out of the market. This means that 152,903 U.S. households could qualify for a mortgage on the median-priced new home before, but not after, the price increases.
The number of priced-out households varies across both state and metropolitan area. The differences are largely driven by the size of the population and the affordability of new homes. Among all the states, California registers the largest priced out effect where a $1,000 new home price increase pushes 15,328 households out of the market, followed by Texas (13,674), and Pennsylvania (9,374).
The initial affordability of new homes is an important element in determining the size of the priced out effect. On a percentage basis, priced out effects are higher in areas where new homes are more affordable. For example, in Chicago-Naperville-Elgin, where 33% of households are capable of buying a median-priced new home, a $1,000 price increase leads to 5,148 households priced out of the market. In New York-Newark-Jersey City, which has an even larger population, only 13% of households can afford the median-priced new home, and 4,054 of them are squeezed out of the market if the price increases by $1,000.
The NAHB estimates also show the number of households priced out of the new home market when interest rates rise. For example, in 2016, around 965,000 households nationwide would be priced out of the market for the median-priced new home if mortgage rates increased from 4.00% to 4.25%.
More details on the estimates, model and its methodology are available on our site.