A $1,000 jump in the median price of a newly built home – which could be spurred by factors such as increased regulations – stands to make buying a home unaffordable for 152,903 households, according to the National Association of Home Builders' latest study of the impact of government regulations on house prices and interest rates.
California had the largest number of potential homeowners – 15,328 -- likely priced out of the market by a $1,000 increase. Texas followed at 13,674 and Pennsylvania at 9,374.
The NAHB also forecast that a 25-basis-point increase in mortgage interest rates from 4% to 4.25% would eliminate 965,000 households from homeownership, based on affordability for a median-priced new home.
The rise of new home prices due to a supply shortage amid a slow recovery in construction activity has largely dominated the industry in 2016 as many potential buyers, particularly first timers, continue to be frozen out of the market.
The NAHB's forecast highlights how vulnerable the market is to continued rate rises, albeit coming off historical lows. Rising prices have been compounding shortages as existing homeowners are reluctant to sell their homes for fear of not being able to find or afford a new property in time.
The Federal Reserve reported last week that real estate continued to surge in the third quarter, with values rising $554 billion. That followed a 1.1% increase in home prices from September to October, up 6.7% on the year-ago period, according to CoreLogic’s latest Home Price Index.
Home prices are expected to continue their upward movement next year, flagging slightly from 2017, as more new construction inventory is added. The National Association of Realtors is forecasting a tapering in home price increases nationally to 3.9% in 2017 compared to 4.9% in 2016. Meanwhile, concerns linger over a possible hike in interest rates by the Fed before the end of 2016.
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