Housing Affordability Hinges On '3 Levers', Says CEO – Why 2025 May Bring Slow Relief

According to a new analysis from Reventure Consulting, U.S. housing affordability is at its worst level since 1981, rivaled only by conditions preceding the 2006 market crash.

Nick Gerli, CEO of Reventure Consulting, said the path toward improved affordability rests on three main factors: mortgage rates, home prices and wage growth. Each element plays a crucial role in determining buyer access to homeownership.

Mortgage rates remain elevated at 7.07% despite Federal Reserve rate cuts. Bond markets have pushed rates up more than 1% since mid-September, reflecting heightened inflation expectations for 2025.

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Price relief varies by region. In late 2024, Florida, Tennessee, Texas, Oklahoma and Colorado saw median list prices decline, driven by rising inventory levels. The Northeast, Midwest and parts of California maintained steady prices due to limited supply.

“I think it’s likely that home prices continue to drop in 2025 in much of the South and parts of the Mountain West due to rising inventory,” Gerli said. “However, values across the Northeast and Midwest and parts of California will likely hold up.”

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Income growth is a potential stabilizing force. U.S. median household income grew 8% in 2023, reaching $80,000. Monthly mortgage payments, at $2,800 per month, consume 39% of median household income or $34,000 annually.

Reaching more sustainable payment ratios requires sustained wage growth. A median income of $100,000 would reduce housing costs to 34% of income – closer to the historical average of 29%. Meeting that target demands 5.5% annual income growth through 2027.

The combination of those factors points toward gradual improvement. Gerli projects mortgage rates could fall to 6.5% by late next year, while home prices may flatten nationally, with regional declines in the South. Combined with projected income growth, these changes would reduce housing costs to 36.5% of median income.

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The recovery timeline suggests a multiyear process barring economic shocks. Current conditions mirror two historical precedents: 1981, when mortgage rates hit 18% and 2006, before the largest housing market decline in U.S. history.

“There’s no quick fix to the current housing market,” Gerli said. “We will need to see a combination of lower mortgage rates, lower prices and higher incomes to see improvement in affordability and more buyers come back into the market.”

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