Affordability improved to its strongest level in nearly four years at the start of 2026, offering a modest tailwind for purchase activity.
However, this improvement may not fully offset ongoing rate volatility, according to new data from First American Data & Analytics.
The company’s Real House Price Index (RHPI) shows affordability rose nearly 11% year over year in January 2026, reaching its best level since August 2022. This improvement was driven by a combination of factors: mortgage rates were approximately 0.9 percentage points lower than a year earlier, nominal home price growth slowed to 0.6%, and household income increased by 3.1%.
“Affordability began 2026 on its strongest footing since August 2022,” Mark Fleming, chief economist, said.
What This Means For Mortgage Professionals
For mortgage professionals, the data suggests a gradual improvement in borrower purchasing power, particularly in markets where home prices are softening.
At the same time, affordability remains more than 60% below its pre-pandemic average, indicating that many borrowers are still priced out despite recent gains.
Key findings for mortgage professionals include:
- Affordability improved nearly 11% year over year.
- Income growth has outpaced home price growth for 19 consecutive months.
- Gains were recorded in all 50 states and 99 of the top 100 markets.
- Rising mortgage rates could limit further improvement.
Local Market Divergence Drives Opportunity
The report shows that affordability gains are being driven primarily by local home price corrections, not solely by rate movement. Markets with the largest improvements, such as Cape Coral and Sarasota, Florida, saw affordability rise more than 16% year over year, largely due to price declines of 6% to 9%.
Other metros, including Denver, Colorado, and Las Vegas, Nevada, also posted gains as modest price declines combined with steady income growth. In contrast, markets where home prices continue to rise without matching income growth, including McAllen, Texas, and Louisville, Kentucky, have seen limited affordability improvement. New Haven, Connecticut, was the only major market in which affordability declined year over year, driven by nearly 13% year-over-year home price growth.
Rates Remain The Key Constraint
Despite the improvement, the outlook for affordability and borrower demand remains uncertain as mortgage rates move higher.
According to the report, recent rate increases have been driven by geopolitical uncertainty and rising energy costs, contributing to inflation concerns. “Mortgage rates have recently moved higher… [and are] likely to blunt improvement in affordability,” Fleming said.
Still, the report emphasizes that affordability is shaped by more than rates alone. Income growth and home price trends remain critical factors, and continued price moderation or declines in some markets could help offset higher borrowing costs.
For loan officers, the data points to a more balanced—but still fragile—purchase market:
- Improved affordability may expand borrower eligibility at the margins.
- Local price corrections are creating targeted opportunity.
- Rate volatility continues to suppress full demand recovery.
The takeaway: affordability is improving, but unevenly. For now, loan officers will need to lean into local market dynamics and borrower-specific scenarios to convert that improvement into volume.
