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How Rising Costs Affect Home Affordability

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Housing affordability remains a critical issue, with 74.9% of U.S. households unable to afford a median-priced new home in 2025, according to NAHB’s latest analysis. With a median price of $459,826 and a 30-year mortgage rate of 6.5%, this translates to around 100.6 million households priced out of the market, even before accounting for further increases in home prices or interest rates. A $1,000 increase in the median price of new homes would price an additional 115,593 households out of the market.

The 2024 priced-out estimates for all states and the District of Columbia and over 300 metropolitan statistical areas are shown in the interactive map below. It highlights the growing housing affordability challenges across the United States. In 23 states and the District of Columbia, over 80% of households are priced out of the median-priced new home market. This indicates a significant disconnect between rising home prices and household incomes.

Maine stands out as the state with the highest share of households (91.2%) unable to afford the state’s median new home price of $682,223. High-cost states such as Connecticut and Rhode Island follow closely, with 88.3% and 87.8% of households, respectively, struggling to afford new homes. Even in states with relatively lower median new home prices, affordability remains a major concern. For example, in Mississippi, where the median home price is $275,333, 70.2% of households still find these new homes out of reach. Meanwhile, Delaware, the state with better affordability in the analysis, has a median new home price of $373,666. However, around 58.2% of households in Delaware still struggle to afford a new home. Even modest price increases, such as an additional $1,000, could push thousands more households from affording these median priced new homes. For instance, in Texas, such an increase could price out over 11,000 households.

It also shows the 2025 priced-out estimates for over 300 metropolitan statistical areas. The analysis estimates how many households in each metro area earn enough income to qualify for mortgages on median-priced new homes. In high-cost areas like the San Jose-Sunnyvale-Santa Clara, CA metro area, where new homes largely target high-income Silicon Valley residents, only 10% of all households meet the minimum income threshold of $437,963 required to qualify for a loan on a median priced new home. In contrast, in more affordable metro areas like Sierra Vista-Douglas, AZ, where the median new home price is $150,893, nearly two-thirds of households can afford a median priced new home. While higher home prices generally result in higher monthly mortgage payments and higher income thresholds, the relationship between home prices and affordability is not always linear. Factors like property taxes and insurance payments can also significantly impact monthly housing costs, adding complexity to affordability calculations.

The affordability of new homes together with the population size of a metro area, significantly influence the priced-out impact of a $1,000 increase in new home prices. In metro areas where new homes are already unaffordable to most households, the effect of such an increase tends to be small. For instance, in the San Jose-Sunnyvale-Santa Clara, CA metro area, an additional $1,000 increase to the home price affects only 259 households, as only 10% of all households could afford such expensive new homes in the first place. Here, the additional price increase only affects a narrow share of high-income households at the upper end of the income distribution, where affordability is already stretched.

In contrast, metro areas, where new homes are more broadly affordable, experience a larger priced-out effect. A $1,000 increase in the median new home price affects a larger share of households in the “thicker part” of the income distribution. For example, in the Dallas-Fort Worth-Arlington, TX metro area, a $1,000 increase in new home price would disqualify 2,882 households from affording a median-priced new home. This is the largest priced-out effect among all metro areas, driven by the combination of relatively moderate home prices and a substantial population base.

More details, including priced-out estimates for every state and over 300 metropolitan areas, and a description of the underlying methodology, are available in the full study.

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Housing Inflation Moderates Amid Higher Energy Costs

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Inflation edged up to a five-month high in December as energy prices surged, accounting for more than 40% of the monthly headline increase. Inflation ended 2024 at a 2.9% rate, down from 3.4% a year ago, although the last mile to the Fed’s 2% target continues to be challenging. While core inflation remained stubborn due to elevated shelter and other service costs, housing costs showed signs of cooling – the year-over-year change in the shelter index remained below 5% for a fourth straight month and posted its lowest annual gain since January 2022, suggesting a continued moderation in housing inflation.

While the Fed’s interest rate cuts could help ease some pressure on the housing market, its ability to address rising housing costs is limited, as these increases are driven by a lack of affordable supply and increasing development costs. In fact, tight monetary policy hurts housing supply because it increases the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise at an elevated pace despite Fed policy tightening. Additional housing supply is the primary solution to tame housing inflation.

Furthermore, the election result has put inflation back in the spotlight and added additional   risks to the economic outlook. Proposed tax cuts and tariffs could increase inflationary pressures, suggesting a more gradual easing cycle with a slightly higher terminal federal funds rate. However, economic growth could also be higher with lower regulatory burdens. Given the housing market’s sensitivity to interest rates, a higher inflation path could extend the affordability crisis and constrain housing supply as builders continue to grapple with lingering supply chain challenges. During the past twelve months, on a non-seasonally adjusted basis, the Consumer Price Index rose by 2.9% in December, according to the Bureau of Labor Statistics’ report. This followed a 2.7% year-over-year increase in November. Excluding the volatile food and energy components, the “core” CPI increased by 3.2% over the past twelve months, after holding steady at 3.3% for three months. The component index of food rose by 2.5%, while the energy component index fell by 0.5%.

On a monthly basis, the CPI rose by 0.4% in December on a seasonally adjusted basis, after a 0.3% increase in November. The “core” CPI increased by 0.2% in December, after rising  0.3% for three consecutive months.

The price index for a broad set of energy sources rose by 2.6% in December, with increases across all categories including gasoline (+4.4%), fuel oil (+4.4%), natural gas (+2.4%) and electricity (+0.3%). Meanwhile, the food index rose 0.3%, after a 0.4% increase in November. Both indexes for food away from home and food at home increased by 0.3%.

The index for shelter (+0.3%) was the largest contributor to the monthly increase in all items index, accounting for nearly 37% of the total increase. Other top contributors that rose in December include indexes for airline fares (+3.9%), used cars and trucks, (+1.2%) and new vehicles (+0.5%). Meanwhile, the index for personal care (-0.2%) was among the few major indexes that decreased over the month. The index for shelter makes up more than 40% of the “core” CPI, rose by 0.3% in December, the same increase last month. Both indexes for owners’ equivalent rent (OER) and rent of primary residence (RPR) increased by 0.3% over the month. Despite the moderation, shelter costs remained the largest contributors to headline inflation.

NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than overall inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). In December, the Real Rent Index rose by 0.1%. Over the twelve months of 2024, the monthly growth rate of the Real Rent Index averaged 0.1%, slower than the average of 0.2% in 2023.

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Inflation Remains Sticky Despite Easing Housing Costs

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Inflation picked up to 2.7% in November, while matching expectations, the last mile to the Fed’s 2% target proves to be the most challenging. Shelter costs continued to be the main driver of inflation, contributing nearly 40% of the monthly increase. However, the year-over-year change in the shelter index remained below 5% for a third straight month and posted its lowest annual gain since February 2022, suggesting moderation in housing inflation.

While the Fed’s interest rate cuts could help ease some pressure on the housing market, its ability to address rising housing costs is limited, as these increases are driven by a lack of affordable supply and increasing development costs. In fact, tight monetary policy hurts housing supply because it increases the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise at an elevated pace despite Fed policy tightening. Additional housing supply is the primary solution to tame housing inflation.

Furthermore, the election result has put inflation back in the spotlight and added some downside risks to the economic outlook. Proposed tax cuts and tariffs could increase inflationary pressures, suggesting a more gradual easing cycle with a slightly higher terminal federal funds rate. Given the housing market’s sensitivity to interest rates, this could extend affordability crisis and constrain housing supply as builders continue to grapple with lingering supply chain challenges.

During the past twelve months, on a non-seasonally adjusted basis, the Consumer Price Index (CPI) rose by 2.7% in November, according to the Bureau of Labor Statistics’ report. This followed a 2.6% year-over-year increase in October. Excluding the volatile food and energy components, the “core” CPI increased by 3.3% over the past twelve months, the same increase as in the previous two months. The component index of food rose by 2.4%, while the energy component index fell by 3.2%.

On a monthly basis, the CPI rose by 0.3% in November on a seasonally adjusted basis, after a 0.2% increase in October. The “core” CPI increased by 0.3% in November, the same increase as in the past three months.

The price index for a broad set of energy sources rose by 0.2% in November, with declines in electricity (-0.4%) offset by increases in gasoline (+0.6%), natural gas (+1.0%) and fuel oil (+0.6%). Meanwhile, the food index rose 0.4%, after a 0.2% increase in October. The index for food away from home increased by 0.3% and the index for food at home rose by 0.5%.

The index for shelter (+0.3%) was the largest contributor to the monthly increase in all items index, accounting for nearly 40% of the total increase. Other top contributors that rose in November include indexes for used cars and trucks (+2.0%), household furnishings and operations (+0.6%), medical care (+0.3%) and new vehicles (+0.6%). Meanwhile, the index for communication (-1.0%) was among the few major indexes that decreased over the month.

The index for shelter makes up more than 40% of the “core” CPI, rose by 0.3% in November after a 0.4% in October. Both indexes for owners’ equivalent rent (OER) and rent of primary residence (RPR) increased by 0.2% over the month. For the rent index, it was the smallest monthly increase since April 2021 and July 2021. Despite the moderation, shelter costs remained the largest contributors to headline inflation. 

NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than overall inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components).

In November, the Real Rent Index fell by 0.1%, marking its first negative reading since December 2021. Over the first eleven months of 2024, the monthly growth rate of the Real Rent Index averaged 0.1%, slower than the average of 0.2% in 2023.

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Housing Costs Continue to Drive Inflation

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Inflation picked up again in October, showing the last mile to the 2% target will be the hardest. Shelter costs remained the main driver of inflation, accounting for over 65% of the 12-month increase in the all items less food and energy index. However, the year-over-year change in the shelter index has been below 5% for the second consecutive month, signaling some moderation in housing inflation.

While the Fed’s interest rate cuts could help ease some pressure on the housing market, its ability to address rising housing costs is limited, as these increases are driven by a lack of affordable supply and increasing development costs. In fact, tight monetary policy hurts housing supply because it increases the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise at an elevated pace despite Fed policy tightening. Additional housing supply is the primary solution to tame housing inflation.

Furthermore, the 2024 election result has put inflation back in the spotlight and added some downside risks to the economic outlook. Proposed tax cuts and tariffs could increase inflationary pressures, suggesting a more gradual easing cycle with a slightly higher terminal federal funds rate. Given the housing market’s sensitivity to interest rates, this could extend affordability crisis and constrain housing supply as builders continue to grapple with lingering supply chain challenges.

The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose by 0.2% in October on a seasonally adjusted basis, the same increase seen over the previous three months. Excluding the volatile food and energy components, the “core” CPI increased by 0.3% in October, the same increase as in August and September.

The price index for a broad set of energy sources remained unchanged in October, with declines in gasoline (-0.9%) and fuel oil (-4.6%) offset by increases in electricity (+1.2%) and natural gas (+0.3%). Meanwhile, the food index rose 0.2%, after a 0.4% increase in September. The index for food away from home increased by 0.2% and the index for food at home rose by 0.1%.

The index for shelter (+0.4%) was the largest contributor to the monthly increase in all items index, accounting for over 50% of the total increase. Other top contributors that rose in October include indexes for used cars and trucks (+2.7%), airline fares (+3.2%), medical care (+0.3%) and recreation (+0.4%). Meanwhile, the top contributors that experienced a decline include indexes for apparel (-1.5%), communication (-0.6%) and household furnishings and operations (-0.1%).

The index for shelter makes up more than 40% of the “core” CPI. The index saw a 0.4% rise in October, following an increase of 0.2% in September. The indexes for owners’ equivalent rent (OER) and rent of primary residence (RPR) increased by 0.4% and 0.3% over the month. These gains have been the largest contributors to headline inflation in recent months. 

During the past twelve months, on a non-seasonally adjusted basis, the CPI rose by 2.6% in October, following a 2.4% increase in September. The “core” CPI increased by 3.3% over the past twelve months, the same increase as in September. The food index rose by 2.1%, while the energy index fell by 4.9%.

NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than overall inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components).

In October, the Real Rent Index remained unchanged for the second consecutive month. Over the first ten months of 2024, the monthly growth rate of the Real Rent Index averaged 0.1%, slower than the average of 0.2% in 2023.

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Inflation Falls Below 3% Amid Persistent Housing Costs

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Inflation dropped below a 3% annualized growth rate for the first time since March 2021 even though housing costs continue to climb. Nonetheless, the headline reading is another dovish signal for future monetary policy, following signs of weakness in the most recent job report.   

Despite a slowdown in the year-over-year increase, shelter costs continue to exert significant upward pressure on inflation, contributing nearly 90% of the monthly increase in overall inflation and over 70% of the total 12-month increase in core inflation. As consistent disinflation and a cooling labor market bring the economy into better balance, the Fed is likely to further solidify behind the case for rate cuts, which could help ease some pressure on the housing market.

The Fed’s ability to address rising housing costs is limited because increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. However, the Fed’s tools for promoting housing supply are constrained. In fact, further tightening of monetary policy would hurt housing supply because it would increase the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise despite Fed policy tightening. Nonetheless, the NAHB forecast expects to see shelter costs decline further in the coming months.  This is supported by real-time data from private data providers that indicate a cooling in rent growth.

The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose by 0.2% in July on a seasonally adjusted basis, after declining 0.1% in June. Excluding the volatile food and energy components, the “core” CPI increased by 0.2% in July, after a 0.1% increase in June.

The price index for a broad set of energy sources remained flat in July, with increases in electricity (+0.1%) and fuel oil (+0.9%) offsetting a decline in natural gas (-0.7%). The natural gas index was unchanged in July. Meanwhile, the food index rose 0.2%, as it did in June. The index for food away from home increased by 0.2% and the index for food at home rose 0.1%.

In July, the index for shelter (+0.4%) continued to be the largest contributor to the monthly increase in all items index. Among other top contributors that rose in July include indexes for motor vehicle insurance (+1.2%) as well as household furnishings and operations (+0.3%). Meanwhile, the top contributors that experienced a decline in July include indexes for used cars and trucks (-2.3%), medical care (-0.2%), airline fares (-1.6%), and apparel (-0.4%). The index for shelter makes up more than 40% of the “core” CPI. The index saw a 0.4% rise in July, following an increase of 0.2% in June. The indexes for owners’ equivalent rent (OER) increased by 0.4% and rent of primary residence (RPR) rose by 0.5% over the month. These gains have been the largest contributors to headline inflation in recent months. 

During the past twelve months, on a non-seasonally adjusted basis, the CPI rose by 2.9% in July, following a 3.0% increase in June. The “core” CPI increased by 3.2% over the past twelve months, following a 3.3% increase in June. This was the slowest annual gain since April 2021. Over the past twelve months, the food index rose by 2.2%, and the energy index increased by 1.1%. This marks the fifth consecutive month of year-over-year increases for the energy index since February 2024.

NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than overall inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). In July, the Real Rent Index rose by 0.3%, after a 0.2% increase in June. Over the first seven months of 2024, the monthly growth rate of the Real Rent Index averaged 0.1%, slower than the average of 0.2% in 2023.

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