As described in a previous post, NAHB’s recently released its 2023 Priced-Out Estimates, show that 96.5 million households are not able to afford a median priced new home, and that an additional 140,436 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.
The pyramid uses the same standard underwriting criterion as the priced-out estimates to determine affordability: that the sum of mortgage payments, property taxes, homeowners and private mortgage insurance premiums should be no more than 28% of the household income.
Based on this, the minimum income required to purchase a $150,000 home at the mortgage rate of 6.25% is $45,672.63. In 2023, about 39 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 39 million households form the bottom step of the pyramid. Another 25.8 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. Obviously, housing affordability is a greater 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 $1.55 million. While this market is significant and important, market analysts should never only focus on them to the exclusion of the larger number of Americans with more modest incomes that support the pyramid’s base.