Rising home buying power is giving many middle-income Americans slightly more flexibility in the housing market. However, despite this improvement, affordability challenges continue to prevent many households from purchasing a home. Higher property prices and still-elevated mortgage rates mean that even modest gains in purchasing ability may not be enough to close the affordability gap.

According to new research from Zillow, U.S. households earning the median income of about $86,300 and able to make a 20% down payment can now afford a home priced around $331,483. That represents an increase of roughly $30,302 compared with the $301,181 they could afford a year earlier.

Mortgage Rates Influence Buying Power

The improvement in home buying power is largely tied to slightly lower mortgage rates over the past year. Borrowing costs have declined from earlier peaks, giving buyers more flexibility when calculating monthly payments.

Data from Mortgage News Daily shows the average rate for a 30-year fixed mortgage was about 5.99% at the end of February. However, rates have since ticked higher to roughly 6.14%. Even with the recent increase, mortgage rates remain lower than the 6.79% average recorded one year earlier.

Small changes in borrowing costs can significantly influence affordability. Lower interest rates reduce monthly payments, allowing buyers to qualify for larger loans without exceeding recommended income thresholds.

Lower Rates Can Unlock More Buyers

Economists say even minor rate reductions can expand access to homeownership. Kara Ng, a senior economist at Zillow, explained that a half-percentage-point drop in mortgage rates could save the typical homeowner roughly $1,000 per year.

Such savings can significantly affect affordability calculations for households considering their first home purchase. As borrowing costs fall, more buyers may qualify for mortgages that were previously out of reach.

Research from the National Association of Realtors suggests that a one-percentage-point decline in mortgage rates could allow approximately 5.5 million additional households to afford a home. This group includes about 1.6 million renters who could potentially become first-time homebuyers.

Median Home Prices Still Out of Reach

Despite the rise in home buying power, the typical home remains too expensive for many middle-income buyers. Data from the National Association of Realtors shows that the median price of a single-family home reached $400,300 in January.

Based on that price and a mortgage rate of roughly 6.19%, buyers would need an annual income of about $94,032 to qualify for a loan under typical lending standards. These calculations also assume a 20% down payment of approximately $80,060.

While this income requirement has declined slightly from last year, it still exceeds the earnings of many households. Mortgage lenders also evaluate additional factors, including credit scores, debt levels, and credit history before approving loans.

Long-Term Price Growth Outpaces Income

The affordability challenge reflects a longer-term trend in the housing market. Home values have increased much faster than household income over the past two decades.

Research from the Federal Reserve Bank of St. Louis shows that median per-capita income rose by about 155% between 2000 and 2024. During the same period, median home prices increased roughly 207%.

The gap widened further after mortgage rates surged from below 3% in 2021 to nearly 8% by late 2023. These rapid increases significantly reduced affordability for buyers entering the market.

Pandemic Price Gains Still Affect Buyers

Even as home buying power improves slightly, many households continue to feel the effects of pandemic-era housing price increases. Strong demand and limited supply pushed home prices sharply higher during that period.

Buyers today must still navigate property values that remain elevated compared with historical levels. Meanwhile, mortgage rates are still higher than those seen earlier in the decade.

As a result, many prospective homeowners continue to delay purchases or search for more affordable locations and smaller properties.

Rising Inventory Offers Some Relief

One factor helping affordability is a modest increase in housing inventory. Zillow reported that the number of homes listed for sale in January was about 6% higher than during the same month last year.

More available listings provide buyers with greater choice and can ease competition in certain markets. However, the broader housing shortage continues to limit supply in many parts of the country.

This imbalance between supply and demand remains one of the most persistent challenges facing the housing market.

More Buyers Could Push Prices Higher

Paradoxically, rising home buying power may also place upward pressure on home prices. As affordability improves, more buyers are likely to enter the market during the spring home-buying season.

Lawrence Yun, chief economist at the National Association of Realtors, noted that stronger buyer demand can quickly affect property prices if housing supply does not increase.

In markets where inventory remains limited, additional buyers may intensify competition for available homes. Without a significant increase in new construction, this demand could push prices higher once again.