How Mortgage Rates Affect Housing Affordability
As housing affordability remains a critical challenge across the country, mortgage rates continue to play a central role in shaping home-buying power. Although mortgage rates stayed elevated throughout 2023 and early 2024, recent data shows a modest decline in mortgage rates. Even slight declines can have a significant impact on housing affordability, pricing more households back into the market.
At the beginning of 2025, with the average 30-year fixed mortgage rate at 7%, around 31.5 million households could afford a median-priced home at $459,826. This requires a household income of $147,433 by front-end underwriting standards1.
In contrast, if the average mortgage rates had remained at the recent peak of 7.62% in October 2023, only 28.7 million households would have qualified. This 62-basis point decline has effectively priced 2.8 million additional households into the market, expanding homeownership opportunities.
As rates climb higher, the priced-out effect diminishes. When interest rates increase from 6.5% to 6.75%, around 1.13 million households are priced out of the market, unable to meet the higher income threshold required to afford the increased monthly payments. However, an increase from 7.75% to 8% would squeeze about 850,000 households out of the market.
provides a detailed breakdown of how mortgage rates affect monthly mortgage payments and the number of households that can afford a median-priced home.
1The sum of monthly payment — including the principal amount, loan interest, property tax, homeowners’ property and private mortgage insurance premiums (PITI) — is no more than 28% of monthly gross household income.