Homebuying power is at its highest level in nearly four years, as lower mortgage rates and slowed demand has improved affordability, a new industry report found.

A median-income household in the United States could comfortably afford a $331,483 home with a 20% down payment in January, $30,000 more than a year ago, according to Zillow's latest analysis. The typical mortgage payment, excluding taxes and insurance and assuming a 20% down payment, was 8.4% lower year over year.

In other terms, a median-income household could now afford about 82,300 more homes for sale in January compared with last year. The nearly 447,000 homes a median-income household could afford represented 40.3% of listings, up from 34.8% a year prior, the report showed.

"A more than $30,000 gain in buying power is meaningful for households that have been stretched thin by high rates. It can mean the difference between settling and choosing," said Kara Ng, senior economist at Zillow, in a press release Monday. "That doesn't suddenly make this market affordable for everyone, but it does crack open doors that had firmly shut when rates peaked."

The 30-year fixed rate mortgage fell from an average of 7.04% in January 2025 to 6.06% a year later, according to Freddie Mac. Mortgage rates hit their highest level in any month since 2000 in October 2023, when the median-income household could only afford a $272,224 home, a recent low point, Zillow found. Rates currently sit at 6.01%, the lowest level in more than three years.

Rates are expected to fall further this year, which would unlock more buying power, Zillow said.

The drop in mortgage rates affect expensive markets the most. In San Jose, the most expensive market the report analyzed, a median-income household gained almost $74,000 in buying power compared to a year ago, the largest increase among major metro areas. San Francisco buyers saw a boost of $56,115, while Washington, D.C. ($48,881), San Diego ($46,506) and Boston ($46,390) rounded out the top five, according to the report.

In addition to improved affordability, inventory also recovered, as 6% more homes were on the market in January compared with a year earlier, Zillow said.

Houston led the country in affordable inventory growth, with almost 4,000 more listings within reach of a median-income buyer than last year, followed by Phoenix (3,434), Dallas (3,267), Miami (2,981) and Atlanta (2,279). Home values fell year over year in each of those markets, the report said.

Part of the reason home-price growth slowed was because of the significant gap that exists between the number of buyers and sellers in the market. There were an estimated 44%, or 600,000, more home sellers than buyers in the housing market last month, up from 30% more a year ago, according to Redfin.