While the current housing market is considered more favorable to buyers than sellers by some mortgage industry leaders, plenty of obstacles remain for aspiring homeowners, especially those looking to buy new properties.
Only 35.9 million out of a total of 132.5 million households are currently able to afford a newly built home based on 2022’s median price of $425,786, according to an analysis from the National Association of Homebuilders. Another 140,000 would be priced out if costs were to rise another $1,000, its researchers said. The findings are based off an assumed 10% down payment, 6.25% interest and household income totaling no more than 28% of the monthly mortgage payment.
For starter properties of no more than $150,000, the number of households able to manage payments would rise by 57.7 million.
Other estimates NAHB found showed that for 2023, a rise in the 30-year fixed rate to 6.5% would also have the effect of pricing out 1.3 million households.
The latest 30-year benchmark rate came in at 6.6% according to Freddie Mac’s weekly survey, but has fluctuated between 6.09% and 6.73% so far in 2023. Other researchers have noted home prices decreasing incrementally on a month-to-month basis.
But limited housing supply continues to plague the existing-home market, prolonging affordability challenges. The supply situation has not been as severe in the new-property market, though.
NAHB’s research comes out as data show new-home purchase applications — and housing costs — increasing to start out 2023, according to the Mortgage Bankers Association’s monthly Builder Application Survey. After a prolonged slowdown toward the end of last year, app volume picked up for the second month in a row, rising 4%. Figures are not seasonally adjusted.
On an annual basis, new-home applications also came in higher for the first time in over a year, rising 1.2%.
“The uptick in new home purchase applications showed a seasonal pickup, and that segment of the market continues to show healthier activity than the broader purchase market,” said Joel Kan, MBA’s vice president and deputy chief economist, in a press release.
The average loan size of new-home purchases increased to $406,953 in February from $401,631 a month earlier, up 1.3%. But compared to the same month a year ago, the mean application amount slipped 5.9% from $432,359.
Almost 70% of new-home applications were for conventional mortgages, while the remaining 30.1% were made up of loans coming through government-sponsored programs.
Despite the early-year rise in volume, the MBA still lowered its anticipated annual pace of new-construction single-family sales to 688,000 from January’s 725,000, based on changes in the market since that time.
“The 5% drop in the estimated new-home sales pace for February to 688,000 units reversed a January gain when buyers had a brief respite from rising mortgage rates, combined with discounts and concessions from sellers,” Kan said. But he added that the decline will likely be less than the fall among sales of existing units this year.
MBA’s findings mirror some of the price trends in the overall real estate market, as reported by Remax and Redfin. Both real estate brokerages found median home prices falling on an annual basis for the first time in over a decade — to $385,000 and $386,721, respectively. However, as they did in MBA’s builders’ survey, housing costs inched back upward on a monthly basis.