U.S. Home Affordability Improves, But Challenges Remain

U.S. Households are seeing a slight improvement in home affordability, driven by easing mortgage rates, but significant challenges persist as home prices remain elevated. Recent data indicates that a household earning the median income can now afford a more expensive home than a year ago, though affordability remains strained overall.

Increased Buying Power

According to a new report from CNBC referencing Zillow data, a U.S. Household with a median income of approximately $86,300 and a 20% down payment can now afford a $331,483 home. This represents an increase of $30,302 compared to the $301,181 home they could afford a year ago.

This improvement is largely attributed to a decrease in mortgage rates. The average rate on a fixed 30-year mortgage currently stands at 6.14%, down from 6.79% a year ago, though it has slightly increased from 5.99% as of February 27th, according to Mortgage News Daily.

Kara Ng, senior economist at Zillow and author of the report, estimates that a half-point drop in mortgage rates could save a typical U.S. Homeowner around $1,000 per year. A 1 percentage point drop could expand the pool of potential homebuyers by approximately 5.5 million households, including 1.6 million first-time homebuyers, according to the National Association of Realtors (NAR).

Affordability Still Lagging

Despite the gains, affordability remains a concern. The median price of a single-family home was $400,300 in January, according to NAR, exceeding the amount a median-income household can currently afford.

To qualify for a mortgage on a $400,300 home with a 6.19% mortgage rate (the January average), buyers would necessitate an income of $94,032 and a 20% down payment of $80,060, as per NAR’s affordability index. Lenders also consider credit score, credit history, and outstanding debt when approving loans.

Whereas the income needed to qualify has decreased compared to a year earlier (when it was $102,096), home values have risen faster than incomes. From 2000 to 2024, median per-capita income grew by around 155%, while median home prices increased by approximately 207%, according to a study from the Federal Reserve Bank of St. Louis. Mortgage rates also jumped from below 3% in mid-2021 to nearly 8% in October 2023.

Inventory and Future Outlook

Improved housing inventory, with 6% more homes on the market in January compared to the previous year, is also contributing to the slight improvement in affordability. However, a broader housing shortage remains a significant issue.

Lawrence Yun, NAR chief economist, cautioned that increased buyer activity could push prices higher if housing supply does not increase.

American Homes in 2026

According to Zillow, two decades of data reveal a cultural shift in American homes.