What Would it Take for the Housing Market to Reach True Affordability?

Recent data show that home prices and mortgage rates would need to drop to unrealistic levels for the typical buyer to afford the median priced home
July 29, 2025
2 min read

With stagnating home price growth over the last several quarters, housing affordability has improved slightly. However, recent data from housing marketing platform Zillow shows that it would take a serious economic downturn for costs to drop enough to actually make a difference for homebuyers. Although home values are projected to end 2025 2% below where they started, this likely won’t make a difference for struggling homebuyers due to years of home price and mortgage rate growth.

So what would it actually take for home affordability to improve?

According to Zillow, a sharp decline in home prices would be one way to reach affordability, but that is unlikely to happen in a substantial way. If mortgage rates, wages, and other costs affecting home affordability maintained the same rate of growth, home values would still need to drop by 18% for the typical home to be affordable for a family earning the median income.

How far would mortgage rates need to drop for homes to be considered affordable?

Mortgage rates would also need to fall to unrealistic levels. Keeping incomes, home prices, and other housing-related costs the same, mortgage rates would need to drop to 4.43% in order for a typical home to be affordable to a buyer making the median income. 

Not even an interest-free loan would make the typical house affordable in the most expensive metros. This scenario is true for many coastal cities, such as New York, Los Angeles, Miami, San Francisco, San Diego, and San Jose. In these metros, even just taxes, insurance, and maintenance can cost over 10% of the median income.

With mortgage rates at 6.7%, these metros are still considered affordable for buyers earning the median income:

  • Memphis, Tenn.
  • Chicago
  • Cleveland
  • Louisville
  • Detroit
  • Buffalo, N.Y.
  • Oklahoma City
  • Indianapolis
  • St. Louis
  • Birmingham, Ala. 
  • Pittsburgh 

Affordability challenges have been ramping up over the past few years

  • Homeowner Sentiment Is Low: A survey from earlier this year shows 84% of homeowners are concerned about housing affordability where they live, while just 33% of respondents say the investment upside of buying in their area is favorable.

 

 
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