This article presents the NAHB’s “priced out estimates” for 2022, showing how higher prices and interest rates affect housing affordability. The 2022 US estimates indicate that a $1,000 increase in the median new home price ($412,5051) would price 117,932 households out of the market. As a benchmark, 87.5 million households (roughly 69 percent of all U.S. households) are not able to afford a new median priced new home. A $1,000 home price increase would make 117,932 more households disqualify for the new home mortgage. Home prices surged during the pandemic, creating affordability challenges, particularly for first-time buyers.

Other NAHB estimates in this paper show that for 2022, 25 basis points added to the mortgage rate at 30-year fixed rate of 3.5% would price out around 1.1 million households. In addition to the national numbers, NAHB once again is providing priced out estimates for individual states and more than 300 metropolitan areas.
### The Priced-Out Methodology and Data

The NAHB priced-out model uses the ability to qualify a mortgage to measure housing affordability, because most home buyers finance their new home purchase with conventional loans, and because convenient underwriting standards for these loans apply. The standard NAHB adopts for its priced-out estimates is that the sum of the mortgage 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.

As a result, the number of households that qualify for mortgages for a certain priced home depends on the household income distribution in an area and the mortgage interest rate at that time. The most recent detailed household income distributions for all states and metro areas are from the 20192 American Community Survey (ACS). NAHB adjusts the income distributions to reflect the income and population changes that may happen from 2019 to 2022. The income distribution is adjusted for inflation using the 2021 median family income at the state3 and metro4 levels and then extrapolated into 2022. The number of households in 2022 is projected by the growth rate of households from 2018 to 2019.

Other assumptions of the priced-out calculation include a 10% down payment and a 30-year fixed rate mortgage at an interest rate of 2.8% with zero points. For a loan with this down payment, private mortgage insurance is required by lenders and thus included as part of PITI. The typical private mortgage insurance annual premium is 73 basis points,5 based on the standard assumption of a national median credit score of 7386 and 10% down payment and 30- year fixed mortgage rate. Effective local property tax rates are calculated using data from the 2019 American Community Survey (ACS) summary files. Homeowner insurance rates are constructed from the 2019 ACS Public Use Microdata Sample (PUMS)7. For the US as a whole, the effective property tax rate is $10.7 per $1,000 of property value and typical homeowner insurance is $3.6 per $1,000 of property value.

### U.S. Priced-Out Estimates

Under these assumptions, 39 million (about 31%) of the 126.7 million US households could afford to buy a new median priced home at $412,505 in 2022. A $1,000 home price increase will thus price 117,932 households out of the market for this home. These are the households that can qualify for a mortgage before a $1,000 increase but not afterwards.

The U.S. housing affordability pyramid represents the number of households that could only afford homes of no more than a certain price. Based on conventional assumptions and underwriting standards, the minimum income required to purchase a $150,000 home is $36,074. In 2022, about 36 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 36 million households form the bottom step of the pyramid (Figure 1). Of the remaining households who can afford a home priced at $150,000, 24.4 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.

### State and Local Estimates

The number of priced out households varies across both states and metropolitan areas, largely affected by the sizes of local population and the affordability of new homes. Among all the states, California registered the largest number of households priced out of the market by a $1,000 increase in the median-priced home in the state (12,411), followed by Texas (11,108), and Florida (6,931), largely because these three states are the top three populous states. Households in California, where half of all new homes are sold for less than $543,767, need an annual income of at least $120,445 to qualify for a new home mortgage. Therefore, around 9.2 million households (68.9% of all households) in California do not earn enough income to qualify for new home loan initially. In contrast, households in West Virginia only need to have a household income of $69,855 to qualify new home loans. Only 34% of households in West Virginia (around 239,830 households) cannot afford new homes at the median price of $306,339 in 2022.

The metropolitan area with the largest priced out effect, in terms of absolute numbers, is New York-Newark-Jersey City, NY-NJ-PA, where 4,734 households will be disqualified for a new median-priced home if price goes up by $1,000. The Chicago-Naperville-Elgin, IL-IN-WI metro area registers the second largest number of priced-out households (4,273), followed by Philadelphia-Camden-Wilmington, PA-NJ-DE-MD metro area (3,235). Different impacts of adding $1,000 to a new home price are largely due to different sizes of metro population and the affordability of new homes to begin with. The largest priced-out effect is in the New York metro area, where the median priced new homes are only affordability to 14% of households, is largely because of its status of have the largest population size among all metro areas (6.6 million households). Compared to the New York metro, the populations in the Chicago and Houston metro areas are much smaller. The Chicago metro area only has half of the New York metro population and the Philadelphia metro area has 25%. However, median priced homes in Chicago or Philadelphia metro areas are relatively more affordable initially. Around 33% of households in Chicago and 45% households in Philadelphia metro area are capable of buying new median-priced homes there.
### Interest Rates

The NAHB 2022 priced-out estimates also present how interest rates affect the number of households that would be priced out of the new home market. If mortgage interest rate increase, the monthly mortgage payments will rise as well and therefore higher household income thresholds are needed to qualify for a mortgage loan. The number of households priced out of the market for a new median priced home is $412,505 by each 25 basis-point increase in interest rate from 1.5% to 9.5%. When interest rates increase from 1.75% to 2.00%, around 1.4 million households can no longer afford buying median-priced new homes. An increase from 3.00% to 3.25% prices approximately 1.5 million households out of the market. However, about 539,000 households would be squeezed out of the market if interest rate goes up to 9% from 8.75%. This diminishing effect happens because only a few households at the smaller end of household income distribution will be affected. In contrast, when interest rates are relatively low, a 25 basis-point increase would affect a larger number of households at the larger section of the income distribution.

^{1} The 2022 US median new home price is estimated by projecting the 2021 preliminary median new home price using the NAHB forecast of the Case-Shiller Home Price Index.
2 We used the standard 2019 1-year ACS data, because the experimental 2020 1-year ACS may have some potential issues on some estimates and also doesn’t cover the metro level estimates due to the disruptions of data collection during the pandemic.

^{3} The state median family income is published by Department of Housing and Urban Development (HUD).

^{4} The MSA median family income is calculated by HUD and published by Federal Financial Institutions Examination Council (FFIEC).

^{5} Private mortgage insurance premium (PMI) is obtained from the PMI Cost Calculator (https://www.hsh.com/calc-pmionly.html)

^{6} Median credit score information is shown in the article “Four ways today’s high home prices affect the larger economy” October 2018 Urban Institute https://www.urban.org/urban-wire/four-ways-todays-high-home-prices-affect-larger-economy

^{7} Producing metro level estimates from the ACS PUMS involves aggregating Public Use Microdata Area (PUMA) level data according to the latest definitions of metropolitan areas. Due to complexity of these procedures and since metro level insurance rates tend to remain stable over time, NAHB revises these estimates only periodically.