Homebuyers gain over $30,000 in purchasing power from lower mortgage rates

A new analysis finds prospective homebuyers have seen their purchasing power rise in the last year due to higher incomes and lower mortgage rates.

Zillow published a report on Monday that found a median-income U.S. household can now comfortably afford a $331,483 home with a 20% down payment. It found that the typical mortgage payment is 8.4% lower than it was a year ago when excluding taxes, insurance and assuming a 20% downpayment. 

Mortgage rates have fallen from an average of 6.96% in January 2025 to 6.1% last month, while incomes have ticked higher to give a median-income household an extra $30,302 in buying power compared with a year ago due to shifts in mortgage rates and household incomes.

“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,” said Kara Ng, senior economist at Zillow.

RENT BECOMING MORE AFFORDABLE FOR MANY AMERICANS AS MARKET STABILIZES

A median-income U.S. household can now comfortably afford a $331,483 home with a 20% down payment, a new Zillow analysis found. (Steve Pfost/Newsday RM via Getty Images)

“That doesn’t suddenly make this market affordable for everyone, but it does crack open doors that had firmly shut when rates peaked,” Ng added.

Zillow’s report noted that with the recent changes in household income and mortgage rates, the purchasing power of homebuyers is now at its highest level since March 2022, when mortgage rates were still below 5%.

The most recent low point for affordability was October 2023, when the median household could afford a $272,224 home as mortgage rates averaged 7.62% that month – the highest average for any month since 2000. 

OHIO GOVERNOR SAYS ENDING PROPERTY TAXES COULD PUSH STATE’S SALES TAX TO 20%

The most recent low point for affordability was October 2023, when the median household could afford a $272,224 home. (David Paul Morris/Bloomberg via Getty Images)

The latest dip in mortgage rates provided the biggest boost to homebuyers’ purchasing power in the nation’s most expensive housing markets.

Zillow noted that a median-income household in San Jose, Californina, has gained nearly $74,000 in buying power from a year ago – the largest gain among major metropolitan areas.

San Francisco buyers saw a boost of $56,115, and they were followed by peers in Washington, D.C. ($48,881), San Diego ($46,505) and Boston ($46,390). 

The number of homes that are affordable for a median-income household has also increased from a year ago by about 82,300 homes, Zillow found, with about 447,000 homes listed in January.

US HOME PRICES ARE RISING – BUT THESE FAST-GROWING MARKETS REMAIN AFFORDABLE

The latest dip in mortgage rates provided the biggest boost to homebuyers’ purchasing power in the nation’s most expensive housing markets. (Loren Elliott/Bloomberg via Getty Images)

The 447,000 affordable home listings represent about 40.3% of total listings, an increase from 34.8% last year. 

Markets where home values have declined over the last year make even more homes available to median-income buyers, boosting purchasing power alongside the lower mortgage rates.

Houston led the country in the growth of affordable home inventory, with nearly 4,000 more homes listed for sale that are within reach for median-income buyers when compared with last year.

GET FOX BUSINESS ON THE GO BY CLICKING HERE

Other metros with significant jumps in affordable home inventory are Phoenix with 3,434 more than last year, Dallas with 3,267, Miami with 2,981 and Atlanta’s gain of 2,279, Zillow found. Each of those markets has seen home values decline from last year.