Key Points:

• Housing affordability improved 2.3 percent year over year in July, marking the fifth consecutive month with an annual gain.
  
  
• Affordability improved in 39 of the top 50 markets, with the strongest gains in markets where active inventory increased the most.
  
  
• Affordability may improve further this year, but gains will likely be modest.

Housing affordability across the nation improved by 2.3 percent year over year in July, marking the fifth consecutive month with an annual gain. Falling mortgage rates, slowing nominal house price growth, and rising household incomes all contributed to this improvement. Preliminary data from August suggests the trend likely continued, pushing affordability to levels last seen in September 2024—a 10 percent improvement from the low point reached in October 2023. While affordability levels remain challenging, there’s a glimmer of optimism in these affordability trends for home buyers.

“The worst of the affordability crunch may be behind us, but a return to pre-pandemic levels will take time,” says Chief Economist Mark Fleming.

Affordability Trending in the Right Direction

Nationally, affordability as measured by the Real House Price index (RHPI) remains historically high—74 percent above the pre-pandemic, 5-year average—but the trajectory is encouraging. Wage growth continues to boost household incomes, giving buyers more purchasing power, even in a high-price environment. At the same time, nominal house price growth has slowed as inventory has rebounded from historic lows, easing some of the competitive pressure that defined the market in recent years. Mortgage rates have also moderated in recent months, reflecting market anticipation of Federal Reserve rate cuts. While rates remain elevated compared to pre-pandemic norms, even modest declines can improve affordability. Together, these factors have pushed affordability to its best level in nearly a year. The road to a full recovery will be gradual, but the direction so far is clear.

Affordability Improves in 39 of the Top 50 Markets

Affordability improvements, however, are not uniform across the country. While gains have been broad-based—affordability improved in 39 of the top 50 markets we track—there is significant variation among them. At the local level, a clear relationship emerges between active inventory growth and affordability gains. Affordability has generally improved the most in markets with the greatest increases in active listings. This dynamic is intuitive: when supply expands, price growth slows, and buyers regain some leverage. Conversely, markets with stagnant inventory levels, often in the Northeast, show smaller affordability gains despite national tailwinds from income growth and lower rates. For example, Raleigh, N.C., ranked among the top five markets for affordability improvement in July and also posted one of the strongest inventory gains. On the other hand, Hartford, Conn., which recorded the steepest affordability decline, was among the bottom five for inventory growth.

A Cautiously Optimistic Outlook for Affordability

Looking ahead, the outlook for affordability is cautiously optimistic. While future Fed rate cuts are largely priced in, mortgage rates could ease slightly if the economy slows more than expected. However, we don’t anticipate meaningful declines from today’s levels, given ongoing uncertainty around inflation. Wage growth may moderate in a softer economy, but it could still outpace home price appreciation in many markets, offering a mild affordability boost. That said, inventory growth may slow as some potential sellers hesitate to list, which could keep prices from falling further. As a result, any affordability improvements in the coming months are likely to be incremental, rather than dramatic. The worst of the affordability crunch may be behind us, but a return to pre-pandemic levels will take time.

Sources:

•    First American Data & Analytics
•    Freddie Mac
•    Census Bureau

July 2025 Real House Price Index Highlights

The First American Data & Analytics’ Real House Price Index (RHPI) showed that in July 2025:

• Real house prices decreased 2.3 percent between July 2024 and July 2025. 
  
  
• Real house prices decreased 1.2 percent between June 2025 and July 2025.
  
  
• Consumer house-buying power, how much one can buy based on changes in income and mortgage rates, increased 1.3 percent between June 2025 and July 2025, and increased 3.8 percent year over year.
  
  
• Median household income has increased 2.5 percent since July 2024 and 56.5 percent since January 2015.
  
  
• Real house prices are 33.6 percent more expensive than in January 2000.
  
  
• Unadjusted house prices are now 63.4 percent above the housing boom peak in 2006, while real, house-buying power-adjusted house prices are 6.4 percent below their 2006 housing boom peak. 

July 2025 Real House Price State Highlights

• The five states with the greatest year-over-year increase in the RHPI are: Alaska (+3.1 percent), New Hampshire (+3.0 percent), Connecticut (+1.9 percent), South Dakota (+1.7 percent), and Wisconsin (+1.4 percent).
  
  
• The five states with the greatest year-over-year decrease in the RHPI are: Florida (-11.3 percent), Montana (-9.6 percent), Nevada (-8.7 percent), Texas (-8.1 percent), and Virginia (-6.5 percent).

July 2025  Real House Price Local Market Highlights

• Among the Core Based Statistical Areas (CBSAs) tracked by First American Data & Analytics, the five markets with the greatest year-over-year increase in the RHPI are: Hartford, Conn. (+4.9 percent), Cleveland (+3.0 percent), Louisville, Ky. (+2.7 percent), San Jose, Calif. (+1.8 percent), and Milwaukee (+1.7 percent).
  
  
• Among the Core Based Statistical Areas (CBSAs) tracked by First American Data & Analytics, the five markets with the greatest year-over-year decrease in the RHPI are: Miami (-16.3 percent), Tampa, Fla. (-14.1 percent), Seattle (-12.4 percent), Raleigh, N.C. (-10.8 percent), and Riverside, Calif. (-10.5 percent).

Next Release

The next release of the First American Data & Analytics’ Real House Price Index will take place the week of October 27, 2025.

About the First American Data & Analytics’ Real House Price Index

The traditional perspective on house prices is fixated on the actual prices and the changes in those prices, which overlooks what matters to potential buyers - their purchasing power, or how much they can afford to buy. First American Data & Analytics’ proprietary Real House Price Index (RHPI) adjusts prices for purchasing power by considering how income levels and interest rates influence the amount one can borrow.

The RHPI uses a weighted repeat-sales house price index that measures the price movements of single-family residential properties by time and across geographies, adjusted for the influence of income and interest rate changes on consumer house-buying power. The index is set to equal 100 in January 2000. Changing incomes and interest rates either increase or decrease consumer house-buying power. When incomes rise and mortgage rates fall, consumer house-buying power increases, acting as a deflator of increases in the house price level. For example, if the house price index increases by three percent, but the combination of rising incomes and falling mortgage rates increase consumer buying power over the same period by two percent, then the Real House Price index only increases by 1 percent. The Real House Price Index reflects changes in house prices, but also accounts for changes in consumer house-buying power. 
 

Disclaimer

Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2025 by First American. Information from this page may be used with proper attribution.