Affordability’s Slow Comeback
Mark Fleming is chief economist at First American, Santa Ana, Calif.
Housing affordability across the nation improved by 3.1% year over year in June, marking the fifth consecutive annual gain. Falling mortgage rates, slowing nominal house price growth, and rising household incomes drove the improvement. Preliminary data from July and August suggests the trend likely has continued, pushing affordability to levels last seen in September 2024—a nearly 12% improvement from the low point in October 2023.
While affordability, as measured by First American’s Real House Price Index, remains more than 70% higher (worse) than the pre-pandemic five-year average, the recent rebound is an encouraging sign for potential buyers.
A key driver of improving affordability is the slowdown in house price growth. In June, prices declined or grew less than 1% annually in 27 of the 50 markets we track, and income growth outpaced home price appreciation in 35 of the 50 markets. San Francisco led in price declines with a nearly 6% year-over-year drop, while Louisville, Ky., posted a 7% annual increase. In both markets, household incomes rose on annual basis, further boosting affordability in San Francisco and helping to offset the impact of rising prices in Louisville. While sellers may feel the pinch of waning pricing power, slower price growth–paired with rising incomes–is finally giving buyers a much-needed edge.
What Do Declining Prices Mean for Sellers?
For sellers, especially those who bought before or during the pandemic boom, it’s not all bad news. As of June, prices have fallen below their peaks in 42 of the top 50 markets we track. Austin, Texas, has seen the steepest decline, with prices down 13% from its June 2022 peak. San Francisco follows closely, with a 10% drop since its April 2022 peak. However, context matters. Even with these declines, much of the pandemic-era price appreciation remains intact. In Austin, prices surged 65% from February 2020 to June 2022. In San Francisco, they climbed 31% over roughly the same period. In short, it would take a substantial and sustained downturn to erase the equity gains homeowners have built over the past few years.
What’s the Outlook for Buyers?
Price deceleration–or outright declines–translates into improved affordability for buyers. In fact, affordability improved in 39 of the 50 markets we track on an annual basis in June. Affordability improved the most in markets like San Francisco, where prices are falling. Conversely, affordability is eroding in markets such as Philadelphia, where prices continue to climb. Another trend worth noting is that markets with downward price pressure often have strong growth in active inventory. More inventory means more competition among sellers, which often leads to price cuts and greater buyer bargaining power—a recipe for improved affordability.
Slow and Steady Improvements in Affordability to Come
Affordability is beginning to shift–gradually and unevenly–but the momentum is turning. The most likely path forward is a slow rebalancing, driven by income growth outpacing home price appreciation, some moderation in prices as inventory improves, and eventual downward pressure on mortgage rates, if economic conditions soften. While this process will take time, likely years, the balance of power is no longer as one-sided as it was during the pandemic frenzy. For those prospective buyers who have been waiting on the sidelines, the housing market is finally starting to listen.
(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)
