Will Affordability Improve or Will Rates Drop Before Long?

September 03, 2025•3 min read

The Current State of Housing Affordability

Housing affordability has been under pressure for the past few years—and 2025 is no exception. With mortgage rates sitting around 6.7% and home prices continuing to rise in many markets, buyers are feeling the squeeze.

But change could be on the horizon. As inflation trends downward and the Federal Reserve signals a potential shift in monetary policy, many are wondering: Will affordability improve soon? Or are high costs here to stay?

Let’s break down what’s happening and what might come next.

Mortgage Rates: Room to Fall?

Mortgage rates are influenced by a mix of inflation data, economic growth, bond markets, and Federal Reserve decisions. As of early September 2025, the Fed has held its benchmark interest rate steady for several months after an aggressive series of hikes in 2022 and 2023.

Recent inflation reports have shown signs of cooling. If this trend continues, the Fed may begin cutting rates later this year or in early 2026. That would likely push mortgage rates lower—but the timeline remains uncertain.

Forecasts from housing economists suggest that rates could gradually ease to around 6.5% by year’s end, with some projecting dips closer to 6.1% in 2026. But these aren’t drastic drops—and the days of 3% mortgages are likely behind us for the foreseeable future.

Home Prices: Still Climbing

While mortgage rates may soften, home prices remain elevated due to one key issue: lack of inventory.

Over 80% of homeowners have mortgage rates below 5%, and many are hesitant to give up those low rates. This so-called “lock-in effect” has kept existing home listings well below normal levels. As a result, prices remain high—even with reduced buyer demand.

Unless there's a major increase in housing supply or a sharp drop in demand, prices are expected to remain steady or rise modestly in the coming year. This means that any affordability improvement would likely need to come from falling rates, not cheaper homes.

Will Affordability Actually Improve?

Affordability is driven by a combination of home prices, mortgage rates, and income. While rates might ease slightly, rising home prices and stagnant wage growth could offset those savings.

However, there are a few ways affordability could improve:

Gradual Rate Relief: Even a 0.5% drop in rates can significantly reduce monthly payments, especially for first-time buyers.
Expanded Loan Options: Some buyers are turning to adjustable-rate mortgages (ARMs) or temporary buydowns to ease upfront costs.
Wage Growth or Incentives: If wage growth continues and down payment assistance programs expand, more buyers may qualify for homes within their budget.

But none of these shifts are guaranteed—and affordability gains are likely to be slow and uneven across different regions.

What Homebuyers Should Do Now

Rather than waiting and hoping for a perfect window, buyers should focus on what they can control:

Strengthen your credit score to qualify for better rates and terms.
Save for a larger down payment, which can reduce your monthly costs and mortgage insurance requirements.
Explore local assistance programs that may help with down payments or closing costs.
Stay flexible on location or home features to increase your pool of affordable options.

If you’re financially ready and find a home that meets your needs, locking in now—especially with the option to refinance later—could make more sense than waiting indefinitely.

Final Thoughts

Affordability isn’t likely to improve overnight. While a slow decline in mortgage rates may offer some relief in the next 6 to 12 months, ongoing inventory shortages and strong home prices will keep pressure on buyers.

If you're hoping for a major affordability breakthrough, patience is key—but being proactive about your finances today could help you act quickly when conditions shift in your favor.

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