Easing rates and tight inventory bring rare relief for buyers and new challenges for lenders
Mortgage affordability in the United States reached its highest point since early 2023, according to the October 2025 ICE Mortgage Monitor report, as falling interest rates and persistent inventory shortages reshaped the housing landscape.
“We’re seeing affordability at a 2.5-year high, which is beginning to bolster purchase demand, while creating more opportunities for homeowners to lower their monthly payments with a rate-and-term refinance loan,” Andy Walden, head of mortgage and housing market research at ICE, said.
Affordability rebounds as rates dip and inventory stays tight
With 30-year mortgage rates averaging 6.26% in mid-September, the monthly principal and interest payment on an average-priced home dropped to $2,148, or 30% of the median US household income.
While still above the long-term average, this marks a notable improvement from the 35% peak in late 2023. Roughly a dozen of the largest 100 US markets, mainly in the Midwest, have returned to near-normal affordability, though coastal cities remain stretched. In Los Angeles, for instance, 62% of median income is needed for a typical mortgage payment, ICE data showed.
Meanwhile, the government shutdown is expected to allow mortgage rates to continue to fall. Effects from the shutdown, combined with worse-than-expected jobs numbers, will likely coerce the Federal Reserve to cut rates again at the end of the month.
“The momentum for mortgage rates to be lower is high,” Eric Hagen, managing director and mortgage and specialty finance analyst at BTIG, told Mortgage Professional America.
Eric Hagen of BTIG says falling rates and steady capital flow leave the housing market stable despite the shutdown. He notes lower volatility, strong non-bank originators, and resilience unless the disruption stretches beyond two weeks.https://t.co/Dr1Q64vCiv
— Mortgage Professional America Magazine (@MPAMagazineUS) October 2, 2025
Annual home price growth ticked up to 1.2% in September after months of slowing, as inventory remained 17–19% below pre-pandemic norms.
“The strongest firming occurred both among markets in the West that have seen inventory levels backtrack in recent months and parts of the Northeast where inventory levels remain in deep deficits,” the report said.
Eighty percent of markets saw price increases, the highest share in nine months, but nearly half remain below recent peaks.
Refinance activity and borrower quality on the rise
Refinance volumes surged 80% over the last four weeks, according to the Mortgage Bankers Association, with ICE noting that rate-and-term refinances accounted for two-thirds of activity. The number of borrowers “in the money” for a refinance—able to cut their rate by at least 75 basis points—jumped to 3.6 million when rates dipped below 6.25%. The average credit score for purchase locks climbed above 736, a record high, while debt-to-income ratios fell to their lowest level in more than two years.
Tim Bowler, president of ICE Mortgage Technology, said, “As affordability improves and homeowners gain the ability to refinance, lenders and servicers need to be ready to act quickly.”
Opportunity and pressure for lenders
This surge in affordability and demand could reshape the mortgage industry in several ways. Lenders are likely to see a boost in both purchase and refinance applications, but they may also face operational pressures to process loans efficiently as volumes rise.
The shift toward more creditworthy borrowers, as indicated by higher average credit scores and lower debt-to-income ratios, could improve loan performance and reduce risk for lenders and investors.
However, the report also flagged ongoing risks, including a rise in serious delinquencies and persistent gaps in flood insurance coverage for high-risk properties, issues that could impact lenders and servicers if left unaddressed.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
