T
he Shutterstock Home Price Index rose by 4.1% year-over-year, marking the first time annual affordability has improved since 2021. This uptick is largely due to declining mortgage rates and increasing household income, which grew by 3.1%. According to Mark Fleming, chief economist at First American, home price appreciation continues to climb but at a slower rate, failing to offset higher incomes and lower rates.

    First American predicts that affordability will continue to improve through the end of the year and into 2025, driven by falling mortgage rates and rising income growth. This potential for further relief could be a game-changer for those waiting to enter the housing market, Fleming notes.

    Starter homes are also becoming more affordable, with U.S. homebuyers needing to earn $76,995 annually to afford the median-priced starter home of $250,000, according to Redfin's September report. This represents a 0.4% decline from last year and the first annual decrease since August 2020.

    However, as Elijah de la Campa, Redfin Senior Economist, points out, starter homes have changed significantly over the past decade. What was once considered a turnkey four-bedroom house in a nice neighborhood is now often a small fixer-upper condo that's all a first-time homebuyer can afford. The American Dream is evolving, and for many, it no longer involves owning a single-family home.

    Geographic differences are also evident, with cities like Tampa, Florida (14% improvement), Denver (12.4%), and Portland, Oregon (11.7%) experiencing the largest gains in affordability. Conversely, Buffalo, New York (-3.2%), Cincinnati (-2.2%), and Milwaukee (-2%) saw significant declines.

    Other indicators suggest that affordability is improving across the board. Redfin estimates that the monthly median housing payment has decreased by $300 from its all-time high in April, while national inventory has ticked up to 4.2 months, giving buyers more negotiating power when searching for a home.