The 2025 Housing Affordability Crisis in Charts: What Actually Changed (And What Wall Street Still Won’t Tell You)

Home prices hit new highs while wages flatlined. The charts tell a brutal story.

The Down Payment Mirage

Median down payments soared past six figures in major metros—a number that now represents years of savings for the average earner. First-time buyer programs? They barely moved the needle, offering drops in an ocean of debt.

Interest Rate Roulette

The Fed's 'adjustments' did little but shuffle the deck. Rates dipped, then spiked, trapping hopeful buyers in a cycle of recalculation and regret. Monthly payments became a moving target no one could reliably hit.

The Rent Trap Widens

Rental costs continued their relentless climb, devouring the very income needed to save for a purchase. The dream of converting rent checks into mortgage equity slipped further away, with the gap widening to a multi-decade record.

Supply Side Standstill

New construction starts missed targets again. Zoning battles dragged on, and material costs stayed stubbornly high. The pipeline remained constricted, a chronic condition with no quick fix in sight.

The Institutional Investor Factor

Private equity and REITs kept snapping up single-family homes, turning potential inventory into permanent rental stock. Their share of the market grew another few percentage points—a small number with an outsized, chilling effect on competition.

So what changed? The numbers got bigger. What didn't? The fundamental mismatch between what housing costs and what people earn. The system isn't broken—it's working exactly as designed for asset holders. For everyone else, it's just another spreadsheet where the math never quite adds up, unless you're the one collecting the fees.

Key Takeaways

• Affordability problems weighed down the housing market in 2025, though there were signs of improvement.
• Mortgage rates declined somewhat and more listings hit the market, helping to ease some of high expenses of buying a home.
• Experts predict that mortgage rates will continue to fall in 2026, although housing affordability issues are expected to persist as long as there is an insufficient supply of housing.

Those hoping the housing market WOULD become more affordable in 2025 didn’t see much relief, as the challenges of high costs continued to stretch from one corner of the country to the other.

Housing experts said while affordability improvements are expected in 2026, any lowering of costs is likely to be gradual, with some house hunters seeing relief while others continue to wait for better buying conditions.

Why This Matters for You

Housing costs shape household budgets, inflation trends, and how much money consumers have left to spend elsewhere in the economy. When affordability stays strained, fewer people can buy homes, which could slow construction, limit wealth-building for younger households, and influence interest-rate policy and broader market growth.

“After years of declining affordability, we’re now on a path where affordability slowly improves, not through a dramatic price correction, but through an extended period of flat home prices, rising incomes, and gradually falling mortgage rates,” noted a report from Compass, a real estate platform.

More Houses Hit the Market

Home sales in 2025 remained low. Home inventory is expected to continue to rise in 2026.

In early 2025, inventory levels increased by around 25% compared to the prior year, as buyers shied away from mortgage rates that approached 7%. But as the mortgage rate dipped later in the year, and some sellers took their homes off the market, year-over-year inventory growth slowed to 10.9% in October, National Association of Realtors data showed.

Active listings are expected to increase in 2026, with Compass projecting yearly inventory growth of between 10% and 15%, as lower mortgage rates bring more buyers and sellers into the market.
The platform forecasts that single-family home listings in the summer will peak above 1 million for the first time since 2017. 

“Housing supply enters 2026 still elevated from the rapid inventory buildup of the past three years, but the pace of growth is already slowing,” Compass's report noted. “While larger shifts remain possible, the baseline outlook is one of moderate, steady inventory growth that supports a gradual normalization of market conditions in 2026.”

Still, the moderate increase in for-sale housing inventory won’t be enough to make up for the 3 million to 4 million additional homes that Goldman Sachs said were needed to bring the housing market into balance.

“The improvement in affordability will be significant enough to lure back some house hunters, but homebuying will remain out of reach for a lot of sidelined buyers. Gen Zers and young families will feel the pinch of still-high costs, with many of them opting for nontraditional living situations to afford housing,” wrote Redfin.

Mortgage Rates Declined Some, But Remained Elevated

Mortgage rates pulled back some in 2025, but remained above 6%, which pushed many potential buyers to the sidelines. But while economists projected that mortgage rates will continue to decline in 2026, it’s not likely to be by much, with most projecting that rates will stay around the low-6% level.

“Mortgage rates have had a disproportionately greater impact on the decline in affordability than the increase in house prices in most cases,” an Oxford Economics research brief said. “Not only have higher mortgage rates almost doubled monthly housing costs, but because of mortgage payment schedules, interest costs have also crowded out principal payments, more so in the early years of a mortgage.”

Houses Got Even More Expensive

Despite home prices remaining relatively flat during 2025, they still hit a record high in June, according to the S&P Cotality Case-Shiller home price index. The most recent NAR data shows that home prices ROSE in about three-quarters (77%) of U.S. markets in the third quarter of 2025. In 4% of markets, prices rose by double-digit percentage points.

According to Oxford Economics, a household needed to earn an annual income of $110,000 in the third quarter of 2025 to be able to afford a single-family home, as well as pay property taxes and home insurance costs. That’s a slight improvement from earlier in the year, but still almost twice as high as the income levels needed to buy a home in 2020.

Sales levels have been lower as buyers left the market due to high borrowing costs. Many sellers opted to take their homes off the market rather than lower their prices, which helped keep housing prices elevated, the data showed.

“In the past, the same economic forces limiting homebuying demand also forced many homeowners into distressed sales, but today’s homeowners tend to have good credit, a lot of equity and low rates, putting less pressure on potential sellers than on buyers,” Redfin noted. 

Home Affordability Shifted by Region

Whether things got better or worse for local housing markets depends on where you live.

Affordability continues to be a pressing issue in coastal California and in the Northeast, while SUN Belt and Midwest towns show pockets where housing costs haven’t risen as fast, according to Oxford Economics.

Related Education

In 2025, affordability challenges spread to areas that had been less costly for homebuyers. Port St. Lucie and Ocala in Florida, Kansas City, Missouri, as well as Fond du Lac and Green Bay, Wisconsin, had some of the steepest declines in housing affordability. 

Will Things Get Better in 2026?

There could be some moderate relief for house hunters in 2026 as economists expect a modest decline in mortgage rates. In addition, while home prices are still likely to grow in 2026, the increase in prices is expected to be slower than wage gains, which could begin to make housing more affordable, Redfin said.