Potential home buyers valued by higher interest rates
About 87.5 million households are unable to afford a new median-priced home, according to new 2022 NAHB price estimates. NAHB estimates that an additional 117,932 households would be unaffordable if the median price of a new house increased by only $1,000.
For a new home with an estimated median price of $412,506 in 2022 and the recent 30-year fixed mortgage rate of 3.5%, a one-quarter percentage point increase in interest rate would cost approximately 1.1 million households. Monthly mortgage payments will increase due to rising mortgage interest rates and therefore higher household income thresholds would be required to qualify for a mortgage.
When interest rates fell from 1.75% to 2.00%, about 1.4 million households could no longer afford to buy new homes at the median price. An increase of 3.5% to 3.75% could exclude around 1.1 million households from the market. However, at considerably higher rates, this number decreases. For example, increasing mortgage rates from 6.25% to 6.5% costs 0.86 million households. This decreasing effect occurs because only a decreasing number of households at the upper end of the household income distribution will be affected. On the contrary, when interest rates are relatively low, an increase of 25 basis points would affect a greater number of households in the lower and most populated part of the income distribution.