In his latest article, Mark Fleming, Chief Economist at First American, outlines the current situation regarding housing affordability, house-buying power, income growth, and other related topics—providing aspiring homebuyers with insights into what 2026 may hold.
In November 2025, housing affordability improved for the ninth consecutive month on a year-over-year (YoY) basis, reaching its highest level since the summer of 2022. Although affordability remains over 63% lower than the five-year average before the pandemic, the trend of improvement has become more evident and more lasting.
The factors that made affordability plummet after the pandemic have significantly weakened. The growth of house prices has decreased to almost zero, mortgage rates have stabilized, and household incomes have kept increasing. These shifts have collectively fueled the ongoing improvement throughout 2025, particularly in recent times.
Improving Home Affordability Fueled by Household Income Shifts
In November, the labor market continued to play a crucial role in supporting housing affordability. Compared to the previous year, annual hourly wage growth in the private sector rose by 3.6%, resulting in a YoY increase of 3.5% in median household income. Only that increase in income raised the house-buying power by about $13,100.
Mortgage rates drove another considerable increase. Rates were lower by 0.57 percentage points compared to the previous year, resulting in an increase in purchasing power of around $23,500. When combined, increased incomes and reduced rates indicate that home buyers possess approximately $36,600 more house-buying power than they did in November 2024.
Simultaneously, the increase in house prices has almost come to a halt. Nationally, nominal house prices saw little movement, with a mere 0.5% increase in November compared to the previous year’s 3.6% and representing the slowest rate since 2012. For the eighth month in a row, the rise in income exceeded that of house prices, leading to a steady improvement in affordability.
The dynamics driving the enhancement of affordability are advantageous for home buyers in various markets nationwide. In November, some 47 out of the 50 major metropolitan areas we monitor reported YoY increases in affordability, highlighting that this improvement is widespread rather than confined to specific locations.
U.S. Housing Affordability Outlook —2026
In conclusion, Fleming suggests that the ongoing affordability outlook will hinge on whether the positive dynamics of today endure. Despite the possibility of a cooling labor market moderating wage growth, it is anticipated to stay positive. It is expected, based on consensus forecasts, that mortgage rates will stay roughly constant this year. This puts the focus on the increase in house prices and, consequently, on housing supply.
Throughout the 2021–2022 timeframe of swift, two-digit price growth—where annual increases neared or surpassed 20%—the inventory levels were over 50% lower than what would be deemed normal. Intense competition and a steep price surge were driven by extreme scarcity. Today, the inventory has improved but is still below the historically normal level.
“Nonetheless, life events—job changes, household formation, and relocation—will continue to draw both buyers and sellers off the sidelines in 2026,” Fleming said.
Although the gaps in inventory have considerably reduced from the extremes of the pandemic period, the latest rise in scarcity serves as a significant warning sign. Should the enhancement of inventory come to a halt or change direction, the upward pressure on house price growth could resume. Affordability gains can still be constrained by limited supply, even with supportive income growth and stable rates.
“Gradual life event-driven market re-engagement should support more inventory and more sales transactions,” Fleming said.
Provided that inventory levels do not worsen significantly due to a higher number of buyers than sellers entering the market, house prices will continue to grow at a controlled pace, contributing to an ongoing improvement in affordability. With the market picking up in 2026, monitor inventory closely.
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