Affordability squeezing homebuyers’ wallets as builders face 'worst-case scenario'

The leader of the nation's largest trade association for homebuilders, on Thursday, warned of a "worst-case scenario" facing some housing markets as homebuyers get squeezed. 

"Right now, in almost no market in this country, can a homebuilder build a house that is affordable for a first-time homebuyer," National Association of Home Builders CEO Jerry Howard said on "Varney & Co." Thursday. "We can't do it. The costs that are on us make it impossible."

His comments come as new data from Redfin revealed that a homebuyer has to earn at least $107,281 to afford the $2,682 monthly mortgage payment on a typical U.S. home, representing a 45.6% jump from last year, when annual income to afford a home was $73,000. 

"The income needed to buy a home is well above what the median income is in this country," Redfin chief economist Daryl Fairweather told FOX Business’ Gerri Willis. "And that means that you have to be part of the upper class to be able to afford a home now, when previously, homeownership was seen as a way to enter into the upper class. Now you have to already be there to be able to afford that starter home."

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According to the Bureau of Labor Statistics, the average median wage for U.S. full-time and salary workers was $55,640 per year, or $1,070 per week, in the third quarter of 2022.

Howard went on to say that he hasn’t seen any sign of a turnaround in the housing market, noting many builders are not looking forward to the spring building season. 

Despite weekly mortgage rates plunging to the lowest level in 41 years, Howard said higher rates, the Feds attempt to crack down on inflation, along with regulation are other hurdles facing the industry,  

"You've got higher interest rates for the consumer, higher interest rates for the builder. The supply chain is still broken. Regulatory burdens are increasing," Howard explained. "The administration has reinstated a lot of the regulatory concerns that the Trump administration had done away with."

Homebuilders will construct homes for whatever market they can build in, according to the housing expert. But because many companies know "people aren't going to be moving into homeownership any time soon," recently completed projects have been high-end luxury or multifamily units and apartments.

The process behind construction permits has also created a "problem" for builders, with overregulation often delaying project timelines.

Homebuilders in Massachusetts and Hawaii face "the worst case scenario," according to Howard, who claimed it can take more than 10 years to complete construction from the time shovels hit the ground.

"The homebuilding industry has been one of the primary strategies of the no-growth movement of the environmental zealots," Howard said. "We go in, and try to build a house, and they find more than a dozen reasons why we shouldn't be able to."

Some homebuilders who have completed single-family homes but have not yet sold them have turned to the rental market to bring in revenue, and others are selling them in bulk to investors at discounted prices to use as rentals.

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This year’s rising mortgage rates, Nevada builder Tom McCormick previously told FOX Business, slashed the number of would-be buyers for his homes.

"They still had the good credit, they still had the good job," he said. But rising home prices and rates, he said, "just squeezed them out of the market."

"I’ve learned my lesson," he also said. "I’ve never seen it change this fast," referring to the rapid decline in housing sales.

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The Wall Street Journal's Nicole Friedman contributed to this report.