Each quarter-point rise in rates eliminates 1M potential home buyers
Anticipated increases in 2019 mortgage rates also come with an expected 1 million households eliminated from affording the median-priced new home with every hike of 25 basis points, according to the National Association of Home Builders.
With the latest mortgage rate slide, about 34 million households could afford the current median new-home sales price of $355,183. That number drops to nearly 32.7 million if the rates hit 4.85%, as the minimum income needed would be almost $98,000.
"This study illustrates how even a relatively small increase in price or interest rates can dramatically impact housing affordability," NAHB Chairman Randy Noel said in a press release. "Housing affordability is a serious problem right now in communities across the country. Rising interest rates, regulatory barriers, higher building materials costs and labor shortages all add to the cost of a home, and are preventing households from achieving the goal of homeownership."
Similarly to rates, for every $1,000 median home price rise, 127,560 households get priced out of affording them. The issue stems from income not keeping up with home prices as values recently rose above peak housing bubble levels.
On the state level, Texas would feel the largest impact with a $1,000 increase in median home value with 11,152 households priced out. California's 9,897 households was next, followed by Ohio's 7,341.
On the opposite end of the spectrum, Vermont's 158 households, Rhode Island's 182 and Alaska's 205 would be the least affected.
The study assumes a 10% down payment and a 30-year fixed-rate mortgage. To be deemed affordable, the sum of the mortgage payment can't exceed 28% of gross monthly income.