The National Association of Home Builders (NAHB) and Wells Fargo have joined forces to create a new metric for understanding housing affordability in the United States: the Cost of Housing Index (CHI). This quarterly index sheds light on the financial burden placed on American families, particularly those with middle and low incomes, who are struggling to keep up with rising housing costs. We discuss the results of these findings below.
Concerning results for housing affordability
The inaugural CHI report, released in Q1 2024, painted a concerning picture:
- National Impact: On average, a typical American family needed to spend 38% of their income to afford the mortgage payment on a median-priced new single-family home. This figure stood at 36% for existing homes.
- Low-Income Squeeze: The burden is far greater for low-income earners (defined as those making 50% of the median income). Shockingly, 77% of their income would be required to afford a new single-family home, with 71% needed for an existing home.
- Metro-Level Analysis: The CHI dives deeper, providing data for 176 metropolitan areas across the U.S. This allows for a more nuanced understanding of affordability challenges across different regions.
What this means for the housing market
The NAHB and Wells Fargo Cost of Housing Index serves as a critical tool for understanding the challenges facing the housing market. The data underscores the urgent need for policies aimed at increasing housing supply, reducing construction costs, and supporting affordable housing initiatives.
Of course, persistently high inflation can not be overlooked as a significant headwind for homebuyers and consumers overall. With the price of virtually all goods skyrocketing over the past few years, this has created significant headwinds for prospective buyers’ ability to save money.
Summary
We currently have a nationwide housing shortage of about 15 million. This lack of housing is the primary cause of the housing affordability challenges. The hope is that we see both an easing of inflation and some easing of interest rates. In addition, we will also need the cost of building materials to retreat some as well.
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