The Steps to Affordability

The NAHB’s Housing Affordability Pyramid offers a look at how many U.S. households can afford homes in various price ranges

It might not come as a shock, but it’s worth repeating: As household income increases, so does the amount of home that household can afford.

The National Association of Home Builders’ Priced Out Model, based data from the U.S. Census Bureau’s American Community Survey, translates income data into the distribution of homes that U.S. households can afford.

Naturally, the NAHB calls the narrow-at-the-top, wide-at-the-bottom construct the Housing Affordability Pyramid. At the base of the U.S. housing market is a large number of households with relatively modest incomes. The homes these households can afford also are relatively modest.

Based on conventional assumptions and underwriting standards, it takes an income of about $26,430 to purchase a $100,000 home. In 2012, about 28.9 million households – the bottom step of the pyramid – in the U.S. are estimated to have incomes lower than that threshold and therefore can only afford homes priced less than $100,000. Of the remaining 87.5 million households who can afford a home priced at $100,000, 23.3 million can only afford a home priced somewhere between $100,000 and $175,000.

The trend continues upward, offering a maximum affordable price range for fewer and fewer households, with the peak showing a small share – 2 percent of households – being able to afford homes priced more than $1.25 million.

The Housing Affordability Pyramid is based on an income threshold and a 10-percent down-payment assumption.