A family making the nation’s median income needs 38% of their earnings to cover the mortgage of a median-priced new home, reports the recent NAHB/Wells Fargo Cost of Housing Index (CHI), a quarterly analysis of housing costs in the United States.
Low-income families, defined as those earning only 50% of median income, would have to spend 75% of their earnings to pay for the same new home.
“The CHI underscores the severity of the housing affordability crisis in countless communities across the nation,” says NAHB chairman Carl Harris. “NAHB’s 10-point housing plan directly addresses this critical issue by focusing on the need to tackle burdensome regulations, permitting roadblocks, inefficient building material supply chains, and other factors that are preventing builders from constructing additional homes that our nation desperately needs.”
The U.S. data for the percentage of earnings needed to purchase a new home in the third quarter is based on a national median new-home price of $420,400 and median income of $97,800. The third quarter median new-home price is up from $412,300 in the second quarter.
The figures track similarly for the purchase of existing homes as well. A typical family would have to pay 38% of their income for a median-priced existing home, while a low-income family would need to pay 75% of their earnings to make the same mortgage payment. The corresponding price for an existing home in the third quarter is 418,700, down from $422,100 in the previous quarter.
“With the nation facing a shortfall of roughly 1.5 million housing units, the latest CHI data clearly illustrates that a lack of housing is making it difficult for American families to afford to purchase a home,” says NAHB chief economist Robert Dietz. “In order to boost the nation’s housing supply, officials at all levels of government must work to eliminate barriers so that builders can build more attainable, affordable housing.”
The CHI breaks down the income versus mortgage equation for an existing home in 176 metropolitan areas based on the local median home price and median income. In 10 out of 176 markets in the third quarter, the typical family is severely cost-burdened or must pay more than 50% of their income on a median-priced existing home. In 85 other markets, such families are cost-burdened and need to pay between 31% and 50%. There are 81 markets where the CHI is 30% of earnings or lower.
San Jose-Sunnyvale-Santa Clara, California, was the most severely cost-burdened market on the CHI, where 85% of a typical family’s income is needed to make a mortgage payment on an existing home. This was followed by Honolulu (75%), San Diego (70%), San Francisco (68%), and Miami (63%).
Low-income families would have to pay between 127% and 170% of their income in all five of the above markets to cover a mortgage.
By contrast, Decatur, Illinois, was the least cost-burdened markets on the CHI, where typical families needed to spend just 16% of their income to pay for a mortgage on an existing home. Rounding out the least-burdened markets are Cumberland, Maryland (18%); Springfield, Illinois (18%); Elmira, New York (19%); and Peoria, Illinois (19%).
Low-income families in these markets would have to pay between 33% and 39% of their income to cover the mortgage payment for a median-priced existing home.
