Experts Predict Slow but Steady Improvement in Housing Affordability for 2026

Housing affordability improved year-over-year for the seventh month in a row in September 2025, marking the longest stretch of progress since late 2019 and early 2020. This insight comes from fresh data released by First American, with Chief Economist Mark Fleming offering perspective on the trends shaping the market.

Even though affordability remains far below the levels seen before the pandemic about 66% lower than the five-year pre-2020 average the recent shift signals real change. The intense price growth and rapid rise in mortgage rates that crushed affordability in recent years have finally paused. At the same time, incomes are rising, mortgage rates have softened from their peaks, and price growth has cooled to more manageable levels.

These three elements income, interest rates, and home prices determine how far a buyer’s budget can go. And for the first time in years, they are slowly aligning in a buyer-friendly direction.

Real House Buying Power Shows Gradual Improvement

The Real House Price Index (RHPI), which adjusts market prices for income and interest rate movements, shows that buyers have gained a little ground in 2025. Fleming notes that this small improvement is expected to continue into 2026.

Mortgage rates are projected to ease further but only slightly as the broader economic picture remains mixed. Income growth is also expected to continue at a steady pace, which will help offset rising home prices. These changes won’t lead to a dramatic increase in affordability, but they will create a slow and steady recovery.

Will Mortgage Rates Decline in 2026?

Inflation has been cooling, but not fast enough for the Federal Reserve to make aggressive policy cuts. Instead, the Fed is easing cautiously. This approach matters, because affordability is driven more by long-term rates like the 10-year Treasury yield than by short-term Fed policy.

Even as the Fed shifts toward a softer stance, the 10-year Treasury rate remains higher than pre-pandemic levels. Persistent concerns about inflation, federal deficits, and heavy Treasury issuance have pushed the “term premium” higher, setting a floor beneath mortgage rates.

Most forecasts suggest that the average 30-year mortgage rate will settle around 6.2% by the end of 2026. That means rate improvements will help, but not dramatically. Any affordability gains will come gradually rather than through sharp rate drops.

Home Prices Expected to Keep Rising—But Much More Slowly

Home prices surged through the pandemic and stayed high as demand far outpaced supply. But those days appear to be behind us. Price appreciation has cooled significantly and is projected to grow by only about 1% per year by the end of 2026.

Even with softer demand caused by higher rates, experts do not expect national home prices to fall. A decade of underbuilding, paired with the lock-in effect that keeps homeowners from selling their low-rate mortgages, continues to restrict supply. With limited inventory still the biggest barrier, modest price gains not declines remain the most likely outcome.

Income Growth Becomes a Key Driver of Affordability

One of the most encouraging signs is that household income is rising faster than home prices. According to the New York Fed’s Survey of Consumer Expectations, the median expected increase in household income is 2.8% over the next year.

When incomes climb faster than prices even if mortgage rates only edge down a little homebuyers gain more purchasing power. Fleming expects these combined forces to lift affordability by roughly 3% between late 2025 and the end of 2026, bringing conditions back to levels last seen in mid-2022.

A Turning Point: Slow Recovery Yet Real Progress

Housing affordability remains a major challenge, but 2026 is shaping up to be the first year in many where the fundamentals line up in a positive direction. Rates are stabilizing, incomes are rising, and price growth is cooling all at the same time.

The improvement won’t be quick or dramatic. Instead, it’s like a large ship slowly changing course. But after years of deteriorating affordability, even a slow, steady shift is meaningful.

For buyers waiting for relief, 2026 may finally bring a market that moves in their favor, even if only by a few steps at a time. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.