What's Happening?
Housing affordability in the United States improved significantly in 2025, with consumer house-buying power increasing by approximately 9.8% year-over-year in November, as reported by the First American Real House Price Index (RHPI). This improvement is attributed to a combination of higher median household incomes, which rose by 3.5% year-over-year, and a decrease in mortgage rates, which were 0.57 percentage points lower than the previous year. These factors collectively enhanced purchasing power by $36,600 compared to November 2024. Despite these gains, the affordability gap remains below pre-pandemic levels, with consumer buying power still 63% below its five-year pre-pandemic average. The report highlights that 47 out of 50 major metropolitan
areas experienced year-over-year affordability improvements, indicating a broad-based trend rather than regional confinement.
Why It's Important?
The improvement in housing affordability is significant for the U.S. economy as it suggests a potential easing of the housing market pressures that have persisted since the pandemic. The increase in household incomes and the reduction in mortgage rates provide more Americans with the opportunity to purchase homes, potentially stimulating economic activity in related sectors such as construction and real estate. However, the continued low inventory levels could pose a challenge, as limited supply may lead to renewed price pressures if demand outpaces the availability of new listings. The housing market's recovery is crucial for economic stability, as it affects consumer spending, job creation, and overall economic growth.
What's Next?
Looking forward, the key determinant of future housing affordability will be the availability of housing inventory. Analysts suggest that life events such as job changes and household formation could bring more sellers to the market in 2026, potentially easing the tight supply and reinforcing affordability improvements. However, if inventory levels do not keep pace with demand, price pressures could re-emerge. The housing market will need to balance these factors to maintain the current trajectory of affordability improvements.
