Homeownership was more attainable in February and is poised to become slightly more affordable in the months to come, as inventory increases, incomes rise and home price appreciation slows, according to a report from First American.
It is also likely that mortgage rates will decrease slightly during the year, helping to improve affordability, as well.
Affordability took a hit to start 2025, declining 2.3% on an annual basis and 2.3% on a month-over-month basis in January, the firm says in its latest Real House Price Index report. This was due mainly to home prices and mortgage rates increasing.
And while nominal household income increased 3.8% annually, it was not enough to offset the reduced affordability from higher mortgage rates and positive price growth.
However, preliminary February data shows an improvement in annual affordability due to slower price appreciation, a decline in mortgage rates and still-positive income growth, First American reports.
“Nationally, the current months’ supply is 4.6, well above the February 2024 level of 3.9, when price appreciation was 6.9 percent – a market that was perhaps ‘too hot,’” says Mark Fleming, chief economist for First American, in a statement. “Months’ supply has inched higher over the last year as the inventory of both new and existing homes has rebounded from historical lows, meanwhile affordability challenges have constrained demand and, in turn, sales activity. As existing homeowners increasingly accept the ‘higher for longer’ mortgage rate environment and decide to list their homes for sale, it’s reasonable to expect months’ supply will creep higher, further cooling price appreciation.”
“The most likely scenario is that months’ supply continues to trend higher, further cooling house price growth, but not quite enough to see a price decline nationally,” Fleming adds. “Of course, real estate is local, and low single-digit price growth nationally likely means prices are declining in some pockets of the country, while growing in others.”
Photo: Ian MacDonald