U.S. News

Home Prices Outpace Rate Drops: Why Millions Still Can’t Afford a Home

Soaring home prices, not rates, keep U.S. homebuying near 30-year lows.

byAndres Castro

October 31, 2025, 8:35 PM

Aerial view of large, modern, single-family homes with green lawns in a suburban development.

Aerial view of large, newly built private family houses in an American suburban area. By Bilanol / Shutterstock.com.

Executive Summary

Elevated home prices, rather than just interest rates, are the primary barrier stalling U.S. homebuying activity, despite a recent dip in mortgage rates.

Mortgage costs have more than doubled since 2020, and national home prices have surged approximately 50%, pushing the median home price to a record five times the median household income.

Lower interest rates alone cannot resolve the housing affordability crisis; the sustainable solution requires slowing home price growth and substantially increasing the supply of modestly priced housing.

The Trajectory So Far

U.S. homebuying activity remains stalled near three-decade lows because elevated home prices, which have surged approximately 50% since 2020 to a record five times the median household income, are the primary barrier to affordability rather than just high interest rates. This has led to mortgage costs more than doubling since 2020, requiring prospective buyers to have nearly double the income to qualify for a typical first-time home loan today compared to five years ago.

Assessing Risk and Value

The persistent housing market slowdown, despite recent mortgage rate dips, indicates that elevated home prices and a severe lack of affordable housing supply are the primary barriers to a rebound, rather than interest rates alone. Investors in real estate and related sectors should recognize that significant market revitalization, and thus potential for value appreciation, will likely depend more on a substantial increase in modestly priced housing construction and moderating home price growth, rather than just interest rate cuts, impacting the valuation and risk profiles of companies tied to current market dynamics.

Expert Predictions and Forecasts

Experts believe that while mortgage rates have dipped, elevated home prices, rather than just interest rates, are the primary barrier preventing millions from achieving homeownership.

Analysts suggest that even a full percentage-point drop in mortgage rates would not resolve the affordability crisis, as returning to 2020 levels would require unrealistic rate reductions.

The most sustainable solution for housing affordability involves slowing home price growth and substantially increasing the supply of modestly priced housing, including smaller homes, condos, and manufactured housing.

Despite a recent dip in the average 30-year mortgage rate to approximately 6.2%—down from 6.8% earlier this year—homebuying activity across the U.S. remains stalled near three-decade lows. This persistent slowdown, as highlighted by Harvard University’s Joint Center for Housing Studies, indicates that elevated home prices, rather than just interest rates, are the primary barrier preventing millions of Americans from achieving homeownership.

Affordability Challenges Persist

Mortgage costs have more than doubled since 2020, significantly impacting affordability for prospective buyers. For instance, a typical first-time homebuyer with a modest down payment now faces a monthly mortgage payment of about $2,500, a stark increase from $1,200 five years ago. To qualify for such a loan today, a household needs an annual income exceeding $130,000, nearly double the income required in 2020.

While current mortgage rates may feel high compared to the ultra-low levels seen during the pandemic, they are not extreme by historical standards. However, national home prices have surged approximately 50% since 2020. This increase has pushed the median home price to a record five times the median household income, a level unprecedented in U.S. housing history.

Rate Drops Alone Insufficient

Experts suggest that even a full percentage-point drop in mortgage rates would only reduce monthly payments by a similar amount as a 10% decline in home prices. Returning to 2020 affordability levels would necessitate mortgage rates falling close to zero, an unrealistic scenario. Furthermore, rising property taxes and insurance costs would still keep overall payments higher than before.

Path to Sustainable Affordability

Therefore, lower interest rates alone cannot resolve the ongoing affordability crisis. The most sustainable solution involves slowing home price growth and substantially increasing the supply of modestly priced housing. This includes boosting the construction of smaller homes, condos, and manufactured housing, categories that have seen building levels fall significantly below historical averages since 2010.

The Need for More Affordable Homes

While the recent decline in mortgage rates offers some welcome relief, true housing affordability will only be achieved when more accessible homes are built. This expansion of supply is crucial to give middle-income families a realistic opportunity to enter the homeownership market once again.