Homebuyer Confidence Rises Amid Lower Mortgage Rates

Recent analysis indicates that individuals looking to purchase a home are finding some encouragement in today’s market. Rising incomes, alongside decreasing mortgage rates, have bolstered purchasing power over the past year.

A new report from Zillow reveals that the median income household in the U.S. can now comfortably afford a home priced at $331,483 with a 20% down payment. It seems pretty standard. The typical mortgage payment, excluding taxes and insurance, is, interestingly, about 8.4% lower than it was a year ago.

Mortgage interest rates have shifted as well, decreasing from an average of 6.96% in January 2025 to 6.1% last month. This, in conjunction with increasing household incomes, has resulted in an additional $30,302 in purchasing power for the average income household compared to last year. “A boost of over $30,000 in buying power is significant, especially for families feeling the pinch from high-interest rates,” noted Kara Ng, a senior economist at Zillow. “It could really change the dynamics between settling for less and choosing what you truly want.”

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Ng added, “This market won’t instantly become affordable for everyone, but it will unlock doors that were tightly shut during the peak of interest rates.”

According to Zillow, due to recent trends, purchasing power for homebuyers has reached its highest point since March 2022, when mortgage rates were below 5%. The lowest point for affordability occurred in October 2023, when mortgage rates spiked to an average of 7.62%, marking the highest monthly average since 2000. At that time, households could only manage to purchase homes priced around $272,224.

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Interestingly, recent declines in mortgage rates have significantly enhanced purchasing power for buyers in some of the nation’s most expensive housing markets. For instance, in San Jose, California, households with median income experienced an increase of nearly $74,000 in purchasing power from a year prior, representing the largest rise in metropolitan areas. Buyers in San Francisco saw their purchasing power rise by $56,115, while those in Washington, D.C., San Diego, and Boston followed close behind.

The total number of homes affordable for average-income households also increased by approximately 82,300, with about 447,000 homes listed in January, according to Zillow.

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The 447,000 affordable listings constituted roughly 40.3% of the total homes on the market, a noticeable increase from 34.8% last year. In a climate where home values have decreased over the past year, more homes are becoming accessible to buyers with average incomes, boosting their purchasing power as mortgage rates fall.

Houston is notably leading the charge, seeing a rise of nearly 4,000 homes within the price range of average-income buyers compared to last year. Major cities like Phoenix, Dallas, Miami, and Atlanta have also reported significant increases in affordable housing inventory, with home prices in all these areas declining since last year.