A new analysis by digital homeownership platform Knock finds that most American households are being priced out of the new home market even as builders shift their focus to smaller homes to accommodate the entry-level market.

With home prices soaring and new construction typically 20% more expensive than existing homes, Knock compared the median household income and the median new home sales price in the nation’s largest metropolitan areas with the most active new home markets. The goal was to determine just how much relief new construction would provide as buyers are grappling with affordability in a highly competitive housing market.

According to the Knock report, the median price of a new home sold in the U.S. in August was $390,900 and to qualify for a mortgage on a home at that price, a buyer making down payment of the national average 6% would need an annual household income of just under $80,000. Based on the 2020 national median household income of $67,521, the Knock report finding means nearly 60% of Americans would not be eligible.

“This analysis highlights how years of building undersupply and the current supply shortages are disproportionately impacting lower income homebuyers looking for alternatives in a housing market where homes are garnering multiple offers and selling for over asking price,” said Knock co-founder and CEO Sean Black. “Although more new homes are expected to come onto the market in 2022, wages have not kept up with home price growth, keeping new construction out of reach for many, especially first-time buyers who don’t have the benefit of equity from a home sale.”

Of the 50 largest metros in which new homes accounted for at least 8% of total home sales, Miami, Sacramento, Calif., and Las Vegas were the least affordable new construction markets. Based on household income, 80% of buyers in Miami and Sacramento would not qualify for a mortgage on a median-priced new home and 65% of buyers in Las Vegas are unable to afford a new home. The Knock report indicates it would take these buyers anywhere from 18 to 30 years to save for a 6% down payment.

With some of the highest percentage of new home sales among the major metros, San Antonio, Oklahoma City, Raleigh, N.C., Minneapolis and Atlanta rank as the most accessible markets for new construction, though the report posits that in each of these markets, approximately 50% of households would not qualify for a mortgage on a median-priced new home based on their income. On average, it would take 15 years to save for a 6% down payment on a median-priced new home.

In the markets with the most new homes for sale, the premium for new construction to existing homes on average is $68,454. However, this gap increases significantly in several markets where the median price for a new home is $720,000, approximately $310,000 more than a median-priced existing home.

“If new construction homes do not align with the buying power of the average consumer, benefits of these added units are felt disproportionately throughout the country and are attenuating a much smaller portion of the building gap issue than previously thought,” said Alexandria Quintana, Knock Research Analyst and the report’s author.

The full report, including charts and methodology, can be found HERE.

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