Real-Estate Purchasing Power Rises for Median-Income Homebuyers on Lower Rates and Higher Incomes

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Improved Affordability for Prospective Homebuyers

A new analysis indicates that prospective homebuyers have experienced a rise in purchasing power over the last year, driven by higher incomes and lower mortgage rates. Zillow's report, published on Monday, states that a median-income U.S. household can now comfortably afford a $331,483 home assuming a 20% down payment. The typical mortgage payment is 8.4% lower than a year ago, excluding taxes and insurance.

Rate Declines and Income Growth

Mortgage rates have fallen from an average of 6.96% in January 2025 to 6.1% last month, while incomes have increased, providing median-income households with an extra $30,302 in buying power compared to a year prior. This shift marks the highest purchasing power level since March 2022, when rates were below 5%. The lowest affordability point was October 2023, when median households could afford only a $272,224 home amid 7.62% rates—the highest monthly average since 2000.

A more than $30,000 gain in buying power is meaningful for households that have been stretched thin by high rates. It can mean the difference between settling and choosing. — Kara Ng, senior economist at Zillow

Impacts in High-Cost Markets

The recent dip in mortgage rates has provided the biggest boost to purchasing power in the nation's most expensive housing markets. In San Jose, California, median-income households gained nearly $74,000 in buying power from a year ago—the largest among major metros. San Francisco buyers saw a $56,115 increase, followed by Washington, D.C. ($48,881), San Diego ($46,505), and Boston ($46,390).

That doesn't suddenly make this market affordable for everyone, but it does crack open doors that had firmly shut when rates peaked. — Kara Ng, senior economist at Zillow

Expansion in Affordable Inventory

The number of homes affordable to median-income households has increased by about 82,300 from a year ago, totaling around 447,000 listings in January and comprising 40.3% of total listings, up from 34.8%. Markets with declining home values offer even more options, enhancing purchasing power alongside lower rates. Houston led with nearly 4,000 more affordable homes listed compared to last year.