A new forecast from Zillow (NASDAQ: Z, ZG) is predicting that mortgage payments on a typical home will be affordable in 20 major metropolitan areas by the end of the year. If the forecast is correct, that would be highest level since 2022.
In presenting its forecast, Zillow noted mortgage payments (including taxes, insurance and maintenance) on a typical home required between 22.5% and 26.5% of median household income in the five years before the Covid-19 pandemic, assuming a 20% down payment. But prices soared starting in 2020, and affordability plummeted in 2022 as when mortgage rates doubled, with affordability reaching all-time lows in October 2023 as a typical mortgage required 38.2% of median household income. At the time, homes in just seven of the nation’s 50 largest metros were affordable to buy at that time.
Looking ahead into 2026, Zillow expects slow but steady home value growth, falling mortgage rates and rising incomes to contribute to a nationwide improvement in affordability. Zillow defines affordability as a scenario when a mortgage payment on a typical house doesn’t require more than 30% of the median household income.
At the national level, a mortgage payment now takes 32.6% of median household income, already the best affordability seen nationwide since August 2022. Zillow is pointing to a new share of 31.8% by the end of the year.
“This is what a small-wins year looks like for housing,” said Zillow Senior Economist Kara Ng. “Rising incomes, subdued price growth, and gradually easing mortgage rates would help buyers regain their footing while allowing homeowners to continue building wealth. These types of slow and steady affordability improvements are exactly what the housing market needs over the long run.”
