Middle-income homebuyers have $30,000 more buying power than a year ago, research finds. It's still not enough

Lifestylevisuals | E+ | Getty Images

When it comes to buying a house, affordability continues to slowly improve.

U.S. households that have a median income — an estimated $86,300 — and enough money for a 20% down payment can now afford a $331,483 home, up $30,302 from $301,181 a year ago, according to a new report from Zillow. By “afford,” Zillow means that the monthly mortgage payment, including insurance and property taxes, would be under 30% of a household’s income.

“A $30,000 increase in buying power can open up a different neighborhood, bigger home or a home with fewer compromises,” the report says.

Read more CNBC personal finance coverage

• Average IRS tax refund is up 10.6%, early filing data shows
• GOP ‘big beautiful bill’ to deal ‘shock’ to the ACA marketplace: health experts
• As millions claim Trump’s ‘no tax on overtime’ deduction, filers risk mistakes
• S&P 500 shrugs off 1% daily drops all the time. Investors can too, advisors say
• Where investors can look for stability as the Iran war rattles markets
• What the Iran war market turmoil means for those nearing retirement
• Musk says Grok can help with your taxes. What experts say about AI and tax prep
• New bill would update anti-poverty program, ‘a critical lifeline’: Warren
• There’s a push to cut capital gains taxes on home sales to add supply for buyers
• Iran war and your portfolio: Historical stock market patterns investors should know
• Trump says ‘401(k)s are way up’ — but workers are tapping them at record rates
• AI, layoffs spur workers to want a career change, survey finds — but few may do it
• Poor coordination can cost couples an average $14,000 in retirement wealth
• Gold price jumps on Middle East turmoil. What to know before investing
• What student loan borrowers need to know about judge’s ruling on SAVE plan
• CNBC’s Financial Advisor 100: Best financial advisors, top firms ranked

The improvement is at least partly due to interest rates that have come down slowly. The average rate on a fixed 30-year mortgage was 5.99%as of Feb. 27 but has since ticked up to 6.14%, according to Mortgage News Daily. A year ago, it was 6.79%.

For mortgages, even rates that are 0.5 percentage point lower can make a difference, said Kara Ng, senior economist at Zillow and author of the report.

“As a rough estimate, a half-point drop in mortgage rates could mean savings of about $1,000 a year for a typical U.S. home,” Ng said.

A 1 percentage point drop in rates could expand the pool of households that can afford to buy a home by about 5.5 million households, including roughly 1.6 million renters who could become first-time homebuyers, according to the National Association of Realtors. NAR said it estimated the income needed to afford a median-priced home assuming a 30-year mortgage, 10% down payment, and mortgage payment of 25% of income, and then calculated using a 7% mortgage rate and a 6% rate.

Median-price home is still unaffordable

However, affordability remains strained. While the amount a median-income household can afford is higher than a year ago, that figure remains below the median price of a single-family home, which was $400,300 in January, according to NAR.

Based on that price and a 6.19% mortgage rate, the average in January, buyers would need an income of $94,032 to qualify for a mortgage, according to the NAR’s affordability index. That measurement also assumes the buyer has a 20% down payment, which in this case would be $80,060. And, of course, lenders consider more than just income in determining whether to approve a loan, including factors such as credit score, credit history and outstanding debt.

That income amount is less compared with a year earlier: When the average rate was 7.04% and the median home price was $398,100, buyers needed $102,096 in income to qualify, NAR’s affordability index shows.

Meanwhile, home values have risen much faster than household incomes. From 2000 to 2024, median per-capita income grew by around 155%, while median home prices increased by about 207%, according to a recent study from the Federal Reserve Bank of St. Louis. Additionally, mortgage rates jumped from below 3% in mid-2021 to nearly 8% in October 2023.

“Buyers are still feeling the impact of rapid price gains during the pandemic and mortgage rates that are still much higher than they were in the early part of this decade,” Ng said.

More buyers in the market could push up prices

Also helping affordability is improved inventory, with 6% more homes on the market in January than a year earlier, according to the Zillow report. However, a broader housing shortage remains a problem.

Improved affordability also means more potential buyers this spring.

“Unless housing supply increases, these additional potential buyers becoming active in the market could simply push up home prices,” Lawrence Yun, NAR chief economist, said in a January release about pending home sales and increasing affordability.

Choose CNBC as your preferred source on Google and never miss a moment from the most trusted name in business news.