Higher Interest Rates Could Price Out Millions of Households

Just a quarter percentage point increase in the current interest rate would price out approximately 1.1 million households with an estimated median price of $412,506 in 2022 and the recent 30-year fixed-rate mortgage rate of 3.5%, reports NAHB’s Eye on Housing. Roughly 87.5 million households are unable to afford a median priced new home, and that number will continue to rise as mortgage interest rates jump to new highs. NAHB 2022 Priced-Out Estimates reveal growing affordability concerns across the nation as the Federal Reserve takes a more aggressive approach to keep inflation under control at the start of 2022.

New NAHB 2022 Priced-Out Estimates showed that 87.5 million households are not able to afford a median priced new home, and that additional 117,932 households would be priced out of the new home market if the price goes up by $1,000.

When interest rates go up from 1.75% to 2.00%, around 1.4 million households could no longer afford buying median-priced new homes. An increase from 3.5% to 3.75% could price approximately 1.1 million households out of the market. However, at considerably higher rates this number tapers. For example, increasing from 6.25% to 6.5% mortgage rates prices out 0.86 million households. This diminishing effect happen because only a declining number households at the higher end of household income distribution will be affected.

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