But challenges will remain for plenty of homebuyers
For the first time since the pandemic boom knocked many borrowers to the sidelines, the forces behind United States housing affordability finally look like they could tilt slightly back toward buyers as 2026 nears.
Still, housing costs still sit far above pre‑COVID norms and the adjustment is expected to be gradual rather than dramatic, according to First American's Real House Price Index.
The company said affordability improved year over year for the seventh straight month in September 2025, the longest run of gains since 2019–2020, even though it remained about two‑thirds weaker than the pre‑pandemic five‑year average.
Income growth set to outrun prices
Mark Fleming, chief economist at First American, said the key shift in 2026 lay in the relationship between paychecks and prices.
“An important dynamic for affordability is that household income is expected to rise faster than house prices next year,” Fleming said.
“According to the New York Fed’s Survey of Consumer Expectations, median expected household income growth is 2.8%. When income growth exceeds house price growth, house-buying power improves—even if mortgage rates don’t decline meaningfully.”
“This is a key driver of the roughly 3% improvement in affordability we expect between the end of this year and end of 2026, which would return affordability to levels not seen since the summer of 2022,” he said.
That view broadly aligned with outside forecasters. Fannie Mae recently projected the 30‑year fixed mortgage rate would average about 6.2% in early 2026 before slipping below 6% by year‑end, with home price growth slowing to near 1.3% in 2026 after stronger gains in 2024 and 2025.
Bruce Gehrke of JD Power says younger borrowers are approaching home buying with caution, factoring lifestyle costs alongside mortgage payments. He notes affordability challenges and market complexities are reshaping expectations for first-time buyers.https://t.co/rEAGOhjG8D
— Mortgage Professional America Magazine (@MPAMagazineUS) November 25, 2025
Rates still high, supply still tight
Even with slightly lower rates and better wage growth, Fleming cautioned that borrowers should not expect a quick reset.
“Affordability remains challenging, but for the first time in several years, the underlying forces are finally aligned toward gradual improvement,” he said.
“Mortgage rates may drift down only slowly, but income growth exceeding house price appreciation will provide a boost to house-buying power - even in a higher-rate world. Affordability won’t snap back overnight, but like a ship finally catching a steady tailwind, it’s now sailing in the right direction,” Fleming said.
First American deputy chief economist Odeta Kushi previously said that the US housing market is expected to make incremental progress in 2026.
Affordability gains would be driven more by “prices cooling and paychecks rising, rather than because financing suddenly gets cheap.” She noted that First American’s house price index shows appreciation at its slowest pace since 2012.
“If that pattern continues into 2026, affordability should keep inching higher, particularly in markets with more active inventory where sellers are trimming prices to bring buyers off the sidelines,” she said.
What it meant for lenders and originators
For lenders and originators, a 3% affordability gain by late 2026 would not unlock a wave of demand on its own, but it would mark a turn away from the relentless erosion seen after 2020.
Slower price growth, stickier but slightly lower mortgage rates, and modest income gains suggested a market in which well‑qualified borrowers could re‑enter, particularly if they were able to bring more income or savings to the table.
Next year still looked like a tough affordability environment, but the worst of the squeeze appeared to be behind the market, and any incremental improvement in borrowers’ buying power would matter in a volume‑starved industry.
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