For the seventh consecutive month in September 2025, housing affordability increased year-over-year (YoY)—the longest span of yearly advances since late 2019 to early 2020. This is according to new data from First American and Mark Fleming, their Chief Economist.
The recent trend indicates a gradual but significant change in the market’s direction, even if affordability is still 66% below the pre-pandemic five-year average. Strong price appreciation and rising mortgage rates, the factors that reduced affordability in the wake of the pandemic, have steadied. A realignment of the factors influencing affordability trends is shown by sustained income growth, softening mortgage rates, and moderate housing price rise.
House-buying power has slightly improved in 2025, according to the Real House Price Index (RHPI), which modifies nominal house prices for changes in income and interest rates. The “real” measure of affordability is expected to continue slightly improving through 2026 as mortgage rates begin to decline from their peak and household earnings continue to climb in tandem with moderate price growth. Although the improvement won’t be significant, it will be long-lasting, and that is important. Together, these three factors dictate how far a buyer’s money can go, Fleming suggested.
2026 Affordability Forecast: Will Mortgage Rates Moderate?
One trend has been consistent throughout the recent fluctuations in the overall economic data: inflation has decreased but is still higher than the Federal Reserve’s target, leading policymakers to soften cautiously rather than aggressively. Because affordability is very sensitive to changes in long-term interest rates, not simply the federal funds rate, the Fed’s caution is important.
For instance, the 10-year Treasury rate is still higher than it was before to the pandemic, even with the Fed’s move toward relaxation. The term premium is still rising due to ongoing fears about inflation, ongoing budget deficits, and significant Treasury issuance. Mortgage rates have a near-term floor as a result. According to mainstream predictions, the average 30-year mortgage rate will be close to 6.2 percent by the end of 2026. This restricts how much affordability relief lower rates can provide on their own. Rate increases in 2026 will be gradual rather than dramatic.
By the end of 2026, nominal house price appreciation is expected to expand by about 1% annually, despite the fact that nominal house price appreciation has already drastically slowed. However, national home prices are not anticipated to decline despite a slowdown in demand brought on by rising mortgage rates. Due to a lock-in effect that keeps current owners in place and more than ten years of underbuilding, structural supply limitations continue to drive down prices. Even in a higher-rate environment, modest appreciation is more expected than outright decreases countrywide due to the floor of the housing supply.
The fact that household income is predicted to increase more quickly than home prices in the upcoming year is a significant factor for affordability. The median predicted rise in household income is 2.8%, according to the New York Fed’s Survey of Consumer Expectations. Even if mortgage rates don’t significantly drop, home-buying power increases when income growth outpaces home price rise. This is a major factor in the approximately 3% increase in affordability that we anticipate between the end of this year and the end of 2026, bringing it back to levels not seen since the summer of 2022.
Although affordability is still a problem, the underlying factors are now in line for a slow recovery for the first time in a number of years. Even in a world with higher mortgage rates, income growth surpassing the appreciation of home prices will boost home-buying power, even if mortgage rates only gradually decline. Although affordability won’t immediately improve, it is now headed in the right direction, much like a ship that has finally found a steady tailwind.
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The post Experts Offer Housing Affordability Predictions for 2026 first appeared on The MortgagePoint.
