Housing costs climb as builders and buyers face new pressure
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US housing affordability deteriorated in the second quarter of 2026, reversing three consecutive quarters of modest improvement and putting fresh pressure on buyers already contending with high borrowing costs and elevated home prices.
A family earning the national median income of $106,800 needed 34% of its income to cover the mortgage payment on a median-priced new home during the quarter, according to the National Association of Home Builders/Wells Fargo Cost of Housing Index. That figure was 32% in the first quarter.
Existing homes were even less affordable. A median-income household needed 36% of its earnings to cover the mortgage payment on a typical existing home, up from 32% three months earlier.
Both figures exceed the Department of Housing and Urban Development’s definition of a cost-burdened household, which applies when housing expenses consume more than 30% of income.
The deterioration reflects more than one difficult quarter for buyers. Mortgage rates, property values and residential construction economics are placing pressure on different parts of the market at the same time, limiting the routes through which affordability can recover.
Higher mortgage rates quickly translate into higher monthly costs
Mortgage rates remain one of the most immediate constraints on purchasing power.
The average 30-year mortgage rate used by NAHB increased from 6.20% in the first quarter to 6.51% in the second. More recent figures show that borrowing costs remain elevated. Freddie Mac reported an average 30-year fixed mortgage rate of 6.65% on Aug. 20.
Changes measured in fractions of a percentage point can materially alter the economics of a purchase.
Freddie Mac estimates that principal and interest on a $300,000 mortgage would be about $1,896 a month at 6.5%. At 7%, that rises to roughly $1,996. Taxes, insurance and other ownership costs come on top of those figures.
That sensitivity helps explain why affordability can deteriorate even without a dramatic movement in home prices. Buyers generally make purchasing decisions based on monthly cash flow rather than the headline value of the property alone.
The effect is particularly severe further down the income distribution. NAHB calculates that a household earning 50% of median income would need 67% of its earnings to make the mortgage payment on a median-priced new home. An existing home would consume 71%.
At those levels, homeownership becomes mathematically difficult for many households without a considerably cheaper property, a larger down payment or lower financing costs.
Builders feel the effect from the other side of the transaction. When buyers lose purchasing power, developers can respond with incentives or price reductions, but those measures have limits when construction, financing, land and labor remain expensive.
NAHB’s August builder survey illustrates the pressure. Builder confidence stood at 35 on its 100-point Housing Market Index, remaining below 40 for a 16th consecutive month. More than one-third of builders, 35%, reported cutting prices, with the average reduction at 6%. Sales incentives were being used by 63% of builders.
Those concessions show how affordability pressures are moving from household budgets into builder strategy.
Higher prices and slower construction complicate the supply equation
Mortgage rates explain only part of the affordability decline.
The median price of a new home used in NAHB’s index rose 2% between the first and second quarters, from $403,200 to $410,700. The median existing-home price increased much faster, rising 8% from $404,300 to $434,900.
The difference is significant. New construction is often portrayed as the more expensive end of the housing market, yet NAHB’s figures show the income burden associated with existing homes exceeding that of new properties in the second quarter.
Limited supply remains central to the problem. NAHB estimates the US housing shortage at roughly 1.2 million homes.
Closing that deficit requires sustained residential construction, but recent activity points in the opposite direction.
US Census Bureau data show privately owned housing starts fell 12.4% in July from the previous month to a seasonally adjusted annual rate of 1.239 million units. Starts were 13.5% below July 2025 levels.
Single-family construction weakened as well. Starts declined 9.9% from June to an annualized rate of 808,000 units.
There are signs of potential future improvement. Building permits rose 5% in July, and single-family authorizations increased 2.5%. Permits, though, represent planned construction rather than completed housing, leaving considerable distance between an approved project and additional inventory available to buyers.
The industry is caught in an awkward cycle. More supply could ease long-term affordability pressure, but builders must finance and construct homes in a market where buyers are constrained by the same high interest rates that increase development costs and soften demand.
Affordability increasingly depends on where buyers live
NAHB analyzed 175 metropolitan markets and found that a typical family needed to spend more than half its income on the mortgage payment for a median-priced existing home in eight of them. Another 77 markets required between 31% and 50%.
San Jose, California, was the most severely burdened market. A typical family there needed 82% of its income for the mortgage payment on a median-priced existing property. The figure was 71% in San Francisco, 70% in Honolulu, 68% in San Diego and 60% in Naples, Florida.
At the other end of the spectrum, a median-income household in Decatur, Illinois, needed 16% of its income for a typical mortgage. Elmira, New York, stood at 17%, while Peoria, Illinois, was at 18%.
Such differences make a single description of the US housing market increasingly inadequate.
Local incomes, land availability, planning rules, construction expenses and existing inventory all affect what buyers can afford and where builders can profitably add supply.
For developers and construction companies, that fragmentation raises the value of local market economics. A project that appears viable under national assumptions may face a very different demand profile once mortgage burdens, wages and competing inventory are assessed at the metropolitan level.
For employers, the consequences reach beyond real estate. Housing costs can influence recruitment, labor mobility and wage expectations, particularly in metropolitan areas where homeownership demands a disproportionate share of household income.
There are three broad routes toward better affordability: lower borrowing costs, weaker home-price growth or greater housing supply. Current conditions offer no immediate answer through any single channel.
Mortgage rates remain high by recent historical standards. Existing-home prices increased sharply during the second quarter. Residential starts weakened in July, and builder confidence remains subdued.
The housing industry’s challenge is therefore not simply to build more homes. It is to deliver additional supply at prices households can finance while keeping projects economically workable for developers.
Until those two sides of the equation move closer together, affordability is likely to remain one of the defining constraints on the US housing market.
Sources:
NAHB
