From the National Association of Homebuilders:
Metro Area House Prices and Affordability
A question frequently posed to economists at the NAHB is “What happens to housing affordability in my city when house prices rise?” One way to answer this is to change the price of a representative home by a fixed amount and observe the impact on affordability. Based on national mortgage underwriting standards, it is possible to estimate how many households that qualified for a mortgage before a house price increase no longer qualify for one afterwards. Those are the households that are “priced out” of the market for a home.
Applying this approach to the U.S. as a whole (detailed results for all 357 metro areas are provided in Table 1) shows that in 2007—using typical assumptions about the mortgage, down payment, property taxes and property insurance, a $1,000 increase in a median-priced new home, more than 217,000 households.
The size of the priced out effect is largely a function of the income distribution. The larger the number of households that have the income necessary to buy a given priced house before the price increase, the more households will be priced out after the price rise. Conversely, the more expensive the house, the fewer the households adversely affected by a price increase.
Full Report (PDF; 61 KB)
Determining the Number of Households Priced Out of a Market (PDF; 17 KB)
Building Fee Increases and Reduced Housing Affordability (PDF; 37 KB)
Detailed results for all 357 metro areas
