Home affordability improved somewhat in July, as home price growth – and mortgage rates – moderated, according to First American’s Real House Price Index.
Affordability improved in 39 of the top 50 markets, with the strongest gains in markets occurring where inventory increased the most. However, there’s still a long way to go to return to pre-pandemic levels.
“Nationally, affordability as measured by the Real House Price index remains historically high – 74 percent above the pre-pandemic, five-year average – but the trajectory is encouraging,” says Mark Fleming, chief economist for First American, in a statement. “Wage growth continues to boost household incomes, giving buyers more purchasing power, even in a high-price environment.”
“At the same time, nominal house price growth has slowed as inventory has rebounded from historic lows, easing some of the competitive pressure that defined the market in recent years,” Fleming adds. “Mortgage rates have also moderated in recent months, reflecting market anticipation of Federal Reserve rate cuts. While rates remain elevated compared to pre-pandemic norms, even modest declines can improve affordability. Together, these factors have pushed affordability to its best level in nearly a year.”
First American says preliminary data suggests the trend likely continued in August, pushing affordability to levels last seen in September 2024 – a 10% improvement from the low point reached in October 2023.
However, Fleming says improvements in home affordability will likely be only incremental in the months to come.
“While future Fed rate cuts are largely priced in, mortgage rates could ease slightly if the economy slows more than expected,” he says. “However, we don’t anticipate meaningful declines from today’s levels, given ongoing uncertainty around inflation.”
“Wage growth may moderate in a softer economy, but it could still outpace home price appreciation in many markets, offering a mild affordability boost,”
Share this article
