"Affordability conditions have improved for four straight months, with lower mortgage rates and stronger income growth boosting prospective buyers' purchasing power," said Edward Seiler, associate vice president, housing economics at the Mortgage Bankers Association and executive director, Research Institute for Housing America, in a press release. 

"MBA is expecting that moderating home-price appreciation, coupled with lower rates, will continue to ease affordability constraints and help to boost activity in the housing market," Seiler added.

While a relief to potential buyers, the fall in rates and payment amounts continue to be tempered by challenging home prices and inventory. Recent data published by Attom found the median home price at a record high of $375,000.

At the same time, the decline in mortgage rates appears to be coming to a temporary halt, and the inventory bump seen earlier in the summer may be hitting a roadblock, although volumes are still higher from a year ago, researchers at First American recently wrote.  

"Weekly data through September shows a deceleration in the year-over-year growth of both active and new listings, while elevated listing withdrawals, when sellers take their homes off the market, suggest hesitant sellers are waiting for better conditions," said Odeta Kushi, deputy chief economist at First American in recent commentary about the existing-home sales outlook.

What accounts for easing affordability?

Along with declining mortgage rates, which fell by over 40 basis points between early August and mid September by MBA's measurements, growing household income contributed to improving affordability conditions last month.   

Median earnings rose 3.2% compared to August 2024, exceeding the pace of payments growth. The effect led MBA's purchase-application payment index to a reading of 157.5, down from 159.4 in July, with lower scores indicating improved affordability. One year ago, the index reading came in at 160.7. The index was benchmarked to 100 in first-quarter 2012 to reflect conditions immediately following the Great Financial Crisis. 

How home affordability changed by category

Conventional loans provided much of the momentum behind shrinking monthly payments, with median amounts falling 2.2% to $2,112 in August from July's $2,160. One year ago, the median payment came in at $2,056.

The median payment for a new Federal Housing Administration-backed purchase loan came in mostly flat with just a $2 month-to-month decrease to $1,863 from $1,865. In August 2024, the FHA amount was $1,817. 

For newly built units, monthly mortgage payments saw a 1% pullback to $2,210 in August from $2,233 in July. On a year-over-year basis, buyers of new construction found greater relief with a 6.4% drop from $2,362.

Meanwhile, states facing the most challenging affordability levels were concentrated in the Western U.S., led by Idaho at 256.5. Nevada and Arizona were next with scores of 241.9 and 214, respectively. Rhode Island and Utah rounded out the top five at 208.3 and 205. 

On the other end of the scale, Alaska offered the greatest homeowner affordability with an index reading of 115.1, followed closely by Louisiana at 115.3. The District of Columbia, Connecticut and New York were next with scores of 117.2, 121.7 and 123.6. 

Affordability also improved across the board for Black, Hispanic and white households, with payment index scores falling between 1.2% and 1.3% on a monthly basis. The reading for Black and Hispanic home buyers ended August at 156.9 and 146.6, while for white households, the number sat at 158.5.