By Legacy Real Estate, with insights from Michael Hyman, Research Data Specialist
Housing affordability remained a focal point in January 2025, with affordability conditions staying above 100 for the second consecutive month. According to the National Association of REALTORS® (NAR) Housing Affordability Index, the index stood at 100.7, signaling that the typical family earns just enough to afford a median-priced home. However, affordability slightly declined compared to one year ago due to higher mortgage rates and increased qualifying income requirements.
Key Market Trends:
- Mortgage Rates Impact Affordability: Higher mortgage rates continue to be a significant factor affecting affordability. The effective 30-year fixed mortgage rate was 7.04% in December, up from 6.72% a year prior. This increase resulted in an 8.4% rise in monthly mortgage payments compared to last year.
- Home Prices and Income Trends: The median existing home price rose 5.0% year-over-year, reaching $402,000. Meanwhile, median family income grew by 4.5%, struggling to keep pace with rising mortgage payments.
- Mortgage Payment Burdens: Nationally, the average monthly mortgage payment increased to $2,148 from $1,981 a year ago, accounting for 24.8% of a typical family’s income. In the West, this share reached 35.8%, making homeownership particularly challenging in that region.
Regional Differences in Affordability:
- The least affordable region was the West, where the index was 69.8, with a median family income of $112,078 and a qualifying income of $160,608.
- The Midwest remained the most affordable region, with an index of 134.2, indicating a relatively lower cost of homeownership.
- The South maintained moderate affordability, while the Northeast remained one of the more challenging regions for buyers.
What This Means for Homebuyers and Sellers
For buyers, the rising cost of homeownership underscores the importance of financial preparation, including evaluating mortgage options and securing competitive rates. For sellers, price growth trends indicate continued demand, though affordability constraints may temper rapid appreciation.
Despite rising mortgage rates, home price growth has slowed in recent months, which could help balance affordability conditions moving forward. The Mortgage Bankers Association also reported a 6.2% decline in mortgage applications, reflecting market adjustments to current economic conditions.
For a deeper dive into the data, read Michael Hyman’s full report here.
At Legacy Real Estate, we are committed to helping buyers and sellers navigate the evolving housing market. Contact us for personalized insights and guidance on achieving your real estate goals.
