Affordability Improves, Offering Hope for the Housing Market
Housing affordability improved by 2.3 percent year over year in July 2025, marking the fifth straight month of annual gains. The improvement stemmed from easing mortgage rates, slower home price growth and rising household incomes, which together boosted buyers’ purchasing power. Early data from August suggests affordability continued to rise, reaching levels not seen since September 2024 and reflecting a 10 percent rebound from the low point in late 2023. Although affordability remains historically strained—still 74 percent above the pre-pandemic average—the steady progress points to a more balanced housing market. Wage growth and moderating prices, along with growing inventory, have helped alleviate some of the pressure on homebuyers.
Improvements have been widespread, with 39 of the top 50 markets seeing better affordability, particularly in areas where active listings have increased. Markets such as Raleigh, N.C., saw some of the biggest gains thanks to expanding inventory, while supply-constrained regions like Hartford, Conn., continued to struggle. Looking ahead, economists expect gradual progress rather than dramatic improvement. Mortgage rates may decline slightly if the economy softens, and income growth could continue to outpace home price appreciation in some areas. However, slowing inventory growth may limit additional gains. Overall, the worst of the affordability crunch appears to be over, but a full return to pre-pandemic conditions will likely take time.
