In a sharp reversal from recent years, one of the narratives that defined the U.S. housing market in 2025 was cooling home price gains.
With mortgage rates forecast to barely budge from current levels next year, year-end indicators suggest that the narrative will continue to define the housing market in 2026, compounding incremental affordability gains made by homebuyers throughout 2025.
Where and to what extent that cooling has helped improve affordability this year falls out along regional lines, with typical wage levels, inventory growth and property tax and insurance price hikes also heaping price pressures on household budgets.
The median sales price of a single-family home rose from $317,100 midway through 2020 to $437,700 by the end of 2022, according to Federal Reserve Bank of St. Louis data. That 40% increase over less than three years was fueled by stimulative fiscal and monetary policies implemented as a response to the COVID-19 pandemic, couched within a housing supply shortage still running in the millions of units.
The rapid increase in home prices and subsequent run-up in borrowing costs as the Federal Reserve hiked interest rates to combat runaway inflation made homebuying unaffordable for typical earners in nearly every corner of the U.S. housing market.
In the third quarter, major monthly homeownership expenses for a median-priced single-family home exceeded 28% of a typical earners’ monthly wages — a common threshold of affordability — in 79% of 580 counties analyzed by real estate analytics firm Attom.
More than 34% of those 580 counties were considered seriously unaffordable, meaning major monthly homeownership expenses exceeded 43% of typical wages. Yet, incremental affordability gains have materialized for homebuyers in recent months as home price gains have cooled and mortgage rates have eased into the low-6% range.
Home prices have come down or appreciated more slowly as a lack of affordability has sidelined prospective buyers, leaving sellers in the lurch. As a result, sellers delisted their homes at an accelerated pace in the second half of the year to preserve pricing power.
A cooling trend continues
The Housing Center of the American Enterprise Institute (AEI) said in a home-price analysis released Monday that year-over-year home price appreciation of 1.6% in November was “one of the lowest rates” recorded by AEI since it began tracking that metric in 2013.
Projecting home price appreciation of 1.6% in December, too, the policy group noted that “elevated home prices during the pandemic, higher interest rates since 2022 and a diminishing pool of qualified entry-level buyers are fueling a reversion of pricing to the mean, especially in metros in the South and West.”
Home-price declines that began 2025 in six of the 100 largest U.S. metros in January had expanded to 32 metros by October, according to real estate analytics firm Cotality.
Title insurance giant First American Financial Corp. reported Monday that purchase affordability improved for the eighth consecutive month in October to its best levels since mid-2022, driven by growing available inventory.
“Price growth has cooled, mortgage rates have eased from their peak and incomes have continued to climb higher,” said Mark Fleming, chief economist at First American. “When the local market offers buyers more options relative to the pace of purchases, the temperature of price appreciation tends to drop.”
His remarks accompanied an update to First American’s Real Home Price Index for October, which showed “real” inflation-adjusted house prices declined 1.1% nationwide from September and 4.4% from the previous October.
However, First American’s calculation of consumer house-buying power, or how much house a person can buy based on changes in income and mortgage rates, increased 1.3% between September and October and 5% year over year.
Mortgage rates dropped by about 0.75% to 1% over the year while median household income rose 3.1%, the company says.
“Now, in November 2025, existing-home months’ supply has ticked up to about 4.1 months and nominal house price appreciation slowed to 0.6% year over year,” Fleming added. “Cooler price growth is one of the most direct ways affordability improves, all else equal.”
A measure of home purchase affordability tracked by the Mortgage Bankers Association (MBA) improved for the sixth consecutive month in November, the trade group recently reported, also largely fueled by softening and declining home prices.
Though the MBA expects mortgage rates to remain near current levels in 2026, wage gains are predicted to outpace national price declines of 0.3%, continuing a 2025 shift in purchasing power to buyers.
