U.S. Home Affordability Rebounds, But First-Time Buyers Still Face Hurdles

A median-income U.S. Household can now afford a home priced at $331,483, marking a $30,302 increase from the previous year and the highest level of affordability since March 2022, according to Zillow Group. But, despite these gains, first-time homebuyers continue to encounter significant challenges in entering the market.

Increased Purchasing Power and Inventory

Zillow’s data indicates that the improved affordability translates to approximately 82,300 more listings being within reach for households with median incomes compared to the previous year. The share of homes considered affordable has also risen, increasing to 40.3% of all listings, up from 34.8% a year earlier. Inventory levels saw a 6% increase in January compared to the prior year, further contributing to the improved conditions.

Factors Driving Affordability Gains

The rise in affordability is primarily driven by a combination of factors: decreasing mortgage rates and modest wage growth coupled with cooling home price appreciation. Average mortgage rates fell from 6.96% in January 2025 to 6.10% last month, resulting in an 8.4% decrease in average principal and interest payments (excluding taxes and insurance, assuming a 20% down payment) compared to the previous year. Yahoo Finance provides historical mortgage rate data.

First-Time Buyer Challenges Persist

Despite the overall improvement in affordability, first-time buyers remain significantly underrepresented in the market. They accounted for only 21% of buyers in the year ending June 2025, substantially below the long-term average of 38% dating back to 1981. The average age of a first-time homebuyer has also reached a record high of 40 years.

Cash Buyers Dominate the Market

The increasing prevalence of cash purchases is exacerbating the difficulties faced by first-time buyers. Over the past year, a record 26% of homes were purchased entirely with cash, giving an advantage to older, equity-rich buyers who can avoid the need for a mortgage.

Regional Variations in Affordability

While affordability has improved nationally, some metropolitan areas have experienced more substantial gains than others. San Jose, California, saw the largest increase in purchasing power, with a nearly $74,000 rise in what median incomes can afford. San Francisco ($56,115), Washington, D.C. ($48,881), San Diego ($46,506), and Boston ($46,390) also experienced significant improvements.

Looking Ahead: Forecasts for 2026

Zillow projects that mortgage rates will continue to decline throughout 2026, potentially further expanding homebuying budgets and supporting a more active spring shopping season. The company forecasts a 4% increase in existing home sales in 2026 compared to 2025. Zillow Group’s investor relations page provides access to annual reports and financial updates.

Age and Seller Dynamics

Market dynamics are also being reshaped by age-related trends. Sellers aged 70 and older are accepting, on average, approximately $20,270 less for their homes than younger sellers, reflecting a willingness to accept lower offers in exchange for a quicker sale. With mortgage rates around 6.3% and 47% more sellers than buyers nationally, these conditions are influencing pricing strategies.

Affordable Housing Expansion in Key Metros

Several major metropolitan areas are experiencing an expansion of affordable housing options. Houston leads the nation with nearly 4,000 additional properties now affordable for typical incomes compared to the previous year. Phoenix, Dallas, Miami, and Atlanta have also added thousands of eligible properties to their respective markets.

Despite the improving situation for borrowers, the advantage held by high-net-worth cash buyers remains a significant factor. Harvard University’s Joint Center for Housing Studies estimates the median price of single-family existing homes at a record $412,500 in 2024, requiring an annual income of at least $126,700 to qualify for a mortgage with a 31% debt-to-income ratio.