Affordability Is Improving in a Surprising Twist—Even as Home Prices Hit Record Highs

Median home sale prices surged to a new record high in June, yet housing affordability actually improved compared to a year ago, creating what at first might seem like a paradox. 

To explain this contradiction, economists point beyond the raw price to a set of shifting economic factors affecting the budgets of today's buyers, with income growth and mortgage rates emerging as the main linchpins.

The June existing-home sales report from the National Association of Realtors® released last week showed that the median existing-home sales price rose 1.8% year over year to reach an all-time high of $440,600.

At the same time, the NAR Housing Affordability Index (HAI) registered at 102.3, up from 95.5 a year ago, at the national level, indicating an improvement in affordability. Affordability also improved in all four regions, with the well-supplied West as the frontrunner with an 8.9% gain, followed by the South (+8.3%).

Even the inventory-constrained Midwest (+6.2%) and Northeast (+4.5%) recorded modest upticks in affordability.

Housing Affordability Index (HAI) explained

NAR's affordability index measures whether a U.S. family earning a median family income, as reported by the U.S. Census Bureau, could qualify for a mortgage on a median-priced single-family home.

An HAI value of 100 means that the family has exactly enough income to qualify for a mortgage on a median-priced home. An index exceeding 100 means that the family has more than enough income to afford a median-priced home, assuming a 20% down payment.

Median family income estimates are based on the average of wage growth and last year's actual income growth.

For example, in January, HAI jumped to a nearly four-year high of 116.5, signifying that a family earning a median income had 116.5% of the income necessary to qualify for a conventional mortgage on a median-priced home.

Notably, the affordability index has been declining over the past six months, but it is still roughly 7 points higher than in June 2025.

Economic forces shaping affordability

According to experts, the year-over-year improvement in housing affordability is largely due to robust income growth combined with a pullback in mortgage rates compared to a year ago.

"While prices reached another record high, incomes have continued to grow faster than prices, and mortgage rates are slightly lower than a year ago," Nadia Evangelou, NAR principal economist and director of real estate research, tells Realtor.com®. "Together, those factors have helped improve affordability despite higher home prices."

Realtor.com economist Jiayi Xu points out that while home sale prices are at a record level, prices are inching higher only slowly.

"In fact, wage growth is outpacing price growth, and combined with a drop in mortgage rates, this has improved affordability even as prices hit a new high," says Xu, echoing the NAR economist.

Specifically, U.S. wages grew at an annual rate of 3.5%, well ahead of the 1.8% year-over-year rise in home prices.

Meanwhile, the average rate on 30-year fixed home loans dropped from 6.82% in June 2025 to 6.49% last month, according to Freddie Mac data, offering buyers some breathing room.

At the regional level, the degree to which housing affordability has improved varied based on how local wages increased relative to local home prices.

In the West, home prices rose just 0.9% year over year, while at the start of 2026 wage growth ran at 3.3%, delivering the nation's strongest affordability bump.

The South saw a similar 0.9% price gain, paired with 3.5% wage growth. In the Midwest, prices rose 2.7% against a 3.4% wage growth.

The Northeast stands out as the exception: Price growth in the chronically undersupplied region outpaced recent wage growth, 3.9% to 3.2%, delivering the smallest affordability boost among the four regions.

Xu characterizes it as "a reminder that the region's persistent inventory shortages are still putting upward pressure on prices even as affordability nudges better nationally."

What this means for homebuyers

Both Evangelou and Xu agree that for present-day buyers, improved affordability presents more opportunities than they had in the past couple of years.

The Realtor.com economist stresses, however, that even though today's housing market could be a better entry point for many purchasers than it was in 2025, it's important to keep in mind that this improvement is rooted in faster wage growth and lower mortgage rates rather than in softer prices.

"Whether the window stays open or closes largely depends on how rates progress from here," she says.

The recently released Realtor.com midyear forecast update projects rates easing to 6.3% by the end of year. However, geopolitical uncertainty fueled by the ongoing conflict in the Middle East adds another layer of risk to that outlook.

Fortunately for aspiring buyers, Xu points out that wage growth has been outrunning price growth for some time, which could keep affordability improving gradually even without further rate relief.

Yet, the market remains challenging, particularly in areas lagging behind in new construction.

"The more homes we bring to the market, the more likely that progress will continue," says Xu.

NAR chief economist Lawrence Yun acknowledged as much when discussing the latest existing-home sales with reporters last week.

"From everyday consumers' perspective, buying a home is very difficult, independent of whether affordability slightly improved from one year ago, or affordability is more difficult compared to last month," said Yun. "So without a doubt, the affordability is a major challenge for people who want to become homeowners, which is the reason why we need more supply."

Yun highlighted the need to bring more housing units online by converting empty commercial spaces into homes and cutting regulatory red tape so builders can start construction faster.