Is Housing Getting More Affordable Than Expected? New Data Says Yes

If you’ve been shopping around for a home, you may be experiencing sticker shock. That’s because the average prices of homes for sale are much higher than many prospective buyers can afford or are comfortable with. But there may be some good news afoot. A new study by Redfin indicates that home affordability may be improving.

How should this new data be interpreted? Should purchasers feel more optimistic about home prices looking ahead? And what will need to occur for housing to become even more reasonably priced?

What the Redfin data reveals

Recent research by Redfin suggests that housing affordability stopped worsening in 2024 for the first time in four years. Last year, a household earning the median U.S. income would need to allocate 41.8% of their earnings to cover monthly housing costs for a typical home, a slight decrease from the 42.2% required in 2022. To limit monthly housing expenses to 30% of their income (a widespread rule of thumb), a homebuyer would need an annual salary of at least $116,782 to afford a median-priced home.

Housing affordability improved in 25 of the 50 largest metropolitan areas in 2024. The least affordable major cities in the Redfin report were Los Angeles, San Francisco, and Anaheim, where more than 75% of income would go toward housing costs. Conversely, Pittsburgh, Detroit, and St. Louis ranked as the most affordable.

How to interpret these findings

Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors (NAR), has also observed the same improving trend in the NAR data.

“Indeed, housing affordability improved in 2024 as mortgage rates fell, especially in anticipation of the widely expected rate cuts from the Federal Reserve,” she says. “This created a more favorable environment for buyers, easing the financial burden for many prospective owners. This is significant news because it signals a turning point in the housing market – a trend already reflected in the stronger home sales activity during the last quarter of 2024. This positive momentum is expected to carry into 2025, supported by two key factors: robust job growth and increasing inventory.”

Russell Diehl, a designated broker and owner of Arizona Network Realty, agrees that the Redfin report is encouraging.

“For the first time in four years, home buyers are seeing a break from worsening conditions, largely due to slight corrections in home prices and a steadier mortgage rate environment,” he notes. “This news should motivate prospective buyers to revisit the market with renewed confidence, especially those who had paused their home search due to affordability concerns.”

Other positive signs

Evangelou also pointed to the NAR Housing Affordability Index (HAI), which showed improving affordability last fall. The HAI is calculated by comparing the income needed to qualify for a mortgage on a median-priced home to the actual median family income; an HAI value of 100 indicates that a family earning the median income has exactly enough earnings to qualify for a mortgage on a median-priced home (assuming a 20% down payment); index values above 100 suggest housing is more affordable. The HAI values for August through November 2024 were 99.1, 104.9, 102.4, and 99, respectively, up from a low of 91.6 tallied in June 2024.

Additionally, consider that the S&P CoreLogic Case-Shiller US National Home Price Index reported a 3.6% annual gain in October 2024 – down from a 3.9% increase in the previous month, indicating a slowdown in home price growth. Zillow’s November 2024 market report forecasted a 2.2% increase in home values throughout 2025, hinting at a modest appreciation compared to previous years.

“Looking ahead, housing affordability is expected to improve further, providing even more opportunities for buyers as mortgage rates are likely to stabilize near 6%,” adds Evangelou. “This stabilization could bring much-needed predictability to the market, making it easier for buyers to plan and budget for home purchases.”

Dissenting views

However, some are doubtful of the Redfin numbers and the prospects of housing affordability improvement.

“While the Redfin report notes a slight decrease in housing costs – households needed 41.8% of the median income for housing in 2024 versus 42.2% in 2023 –this modest 0.4 percentage point change is insufficient to claim meaningful improvement when the benchmark rate for affordability is 30%,” says Albert Lord, founder/CEO of Lexerd Capital Management. “This reliance on a single observation in November 2024 lacks statistical rigor and fails to demonstrate a sustained trend in affordability. Consider that the U.S. median household income was $80,610 in 2023, and only 34% of households earned over $100,000. The report’s indication that a $116,000 income is required to afford a home highlights the severity of the issue – it suggests that only 20% to 25% of households can currently afford homeownership.”

Andrew Fortune, Realtor and owner of Great Colorado Homes, shares Lord’s skepticism, although he’s hopeful about the market he works in, Colorado Springs.

“Here, prices have remained flat since rates rose in mid-2022. I expect 2025 to be the year that we see prices drop in Colorado Springs, as housing inventory is currently higher than we have seen in 12 years,” continues Fortune. “While the Redfin study suggests a slight easing in affordability pressures in some areas, the major cities do not share this trend, and affordability challenges remain significant in most areas.”

Count Southeast Michigan Realtor Jason Gelios among the dubious.

“I personally believe that housing is not more affordable these days. The income a household needs to be able to purchase what I feel is a starter home is significantly higher than in years past,” he says. “More affordable homes will need to be built to help aid in this affordable housing crisis.”

How housing can become more affordable

To help make homes less expensive, homebuilder costs need to be reduced by decreasing regulatory barriers and providing incentives to encourage construction of less costly residences, the experts suggest.

“Additionally, offering tax incentives for existing homeowners to sell could help increase inventory, easing price pressures and offering more choices,” says Evangelou. “Nearly 40% of existing homes are starter homes, which, typically priced at 85% of the median-priced home, are critical for first-time buyers. Areas with more starter-home inventory could provide greater accessibility for younger or lower-income buyers – driving demand in creating a more affordable housing market.”

Mortgage rates would also need to drop significantly for residences to become more affordable and incentivize homeowners to list their homes and sell.

“This trade-up activity, where existing homeowners move up the property ladder to higher-value homes, would help create additional inventory in the market, alleviating some of the supply constraints currently limiting housing affordability,” explains Lord.

How to improve your odds of affording a home purchase

Whether or not you believe homes for sale are more within your means nowadays, there are things you can do to ease your path to homeownership and pay less for a home. Here are proven tips offered by the pros:

• Raise your credit score by paying down debts, paying your bills on time, not opening new accounts or closing existing accounts, reviewing your three free credit reports for errors, and correcting those errors with the three major credit bureaus.
• Partner with an experienced Realtor or agent. “This expert can uncover opportunities and financial products tailored to your needs,” says Diehl.
• Shop around different mortgage lenders, and compare interest rates and loan offers carefully to find the best deal.
• Expand your home search area beyond your comfort or familiarity zone. “Broaden your search to less competitive markets and neighborhoods further away from the center of town, which can be more affordable,” recommends Fortune.
• Save more. “Develop an aggressive financial plan for savings to help increase your down payment,” advises Lord.
• Explore and apply for first-time buyer programs. “These are often offered locally, providing the opportunity to get down payment or closing cost assistance or lower interest rates,” Fortune says.
• Stay within your budget and loan approval amount. “If you are approved for a mortgage loan of, for example, $250,000, don’t look for homes above this range unless you can comfortably afford a higher down payment to make up the difference,” Gelios suggests.