Mortgage rates drop to the lowest level in over a year, pushing refinancing 111% higher annually

Housing affordability in the U.S. is being strained by several forces, especially persistently high mortgage rates. During the pandemic, buyers benefited from sub-3% rates, but by late 2023 rates hit 8%, and today are still around 6.5%–7%. Combined with home prices that are over 50% higher than in 2020, many first-time buyers are priced out, and existing owners are reluctant to sell.

Zillow estimates mortgage rates would need to fall to about 4.43% for the typical home to be considered affordable—an outcome analysts call unlikely. Even at 0% interest, homes in markets like New York, Los Angeles, Miami, San Francisco, San Diego, and San Jose would remain unaffordable because prices are simply too high.

Agents say the bigger obstacle is the price of homes themselves: tight inventory and heavy competition require large down payments, especially in cities like New York. Between May 2020 and May 2025, the Case-Shiller Home Price Index rose more than 51%.

Mortgage rates affect monthly payments, but affordability depends more on the overall cost—buyers need enough cash for down payments and closing costs. Limited inventory of lower-priced homes adds to the problem. Many owners are holding on to properties to keep their low mortgage rates, further reducing supply.