First American: Affordability Improves to Best Level in Three-Plus Years

Cooling home price growth has helped boost affordability to its best level since the summer of 2022, according to First American, Santa Ana, Calif.

“While that’s a welcome milestone, affordability remains more than 64% below the pre-pandemic five-year average,” First American Chief Economist Mark Fleming noted. “But the trend is durably heading in the right direction.”

Fleming said the “one-two punch” that did the most damage to affordability after the pandemic—rapid house price appreciation followed by a sharp run-up in mortgage rates—has lost its force. “Price growth has cooled, mortgage rates have eased from their peak, and incomes have continued to climb higher,” he added.

Keep an Eye on Months’ Supply: the ‘House Price Thermostat’

Fleming said there is an important metric that is quietly signaling the pace of house price growth right now: months’ supply, which measures the time it would take to deplete the inventory of homes for sale at the current sales rate. “Months’ supply helps identify whether a market favors buyers or sellers,” he said. “Generally, when months’ supply is low, competition tends to run hotter and price growth is more likely to accelerate. When months’ supply rises, the market’s ‘price thermostat’ turns down, and price appreciation typically cools—supporting affordability.”

During the ultra-tight conditions of late 2021, existing-home months’ supply was just above two months, and price growth was exceptionally strong–near 20% year over year, per First American data. Then, as the market gradually moved away from that extreme, months’ supply drifted higher and price growth cooled. By November 2024, months’ supply was closer to 3.8 months and price growth had moderated to 3.5%. As of November 2025, existing-home months’ supply had ticked up to about 4.1 months and nominal house price appreciation slowed to 0.6% year over year.

“By historical standards, four months of supply is just a little below the pre-pandemic, five-year average of 4.2 months,” the report said. “But, as months’ supply has moved higher from the pandemic-era tightness, price appreciation has cooled noticeably. Cooler price growth is one of the most direct ways affordability improves, all else equal.”