Affordability of purchasing a home hinges on decreasing either the interest rates or property prices.
Mortgage rates are anticipated to decline between now and the end of 2026, offering some relief to homebuyers, while home prices are expected to continue appreciating, albeit at a slower pace. This trend, however, comes with increased competition in the housing market.
Since early 2020, the income needed to afford a home in more than half the country has surged by 50 percent. This is due, in part, to the rise in home prices fueled by the pandemic. In July 2025, the median price of a home in the U.S. stood at $422,400, according to the National Association of Realtors.
Experts predict that mortgage interest rates will remain stable in the range of 3 to 3.5% for 10-year loans throughout the remainder of 2025. For 2026, the European Central Bank's key interest rate is forecasted to stabilize around 2%, which could support moderate decreases in borrowing costs next year. However, geopolitical and economic risks may counteract this trend.
It's important to note that a one-half point drop in mortgage rate translates to a monthly payment that is $109 lower, while a 1 percent decrease in home price only saves around $21 per month. Therefore, a decline in mortgage rates can lower borrowing costs, but may also lead to increased competition and home prices.
The housing market is affected by supply and demand, with a shortage of 4.7 million units in the U.S. This shortage could potentially lead to price stability or even price increases, despite the anticipated decline in mortgage rates.
In some cities like Jacksonville, Florida and Atlanta, modest declines in median home prices have already been observed in July 2025. However, prices of homes might decline in certain areas due to economic uncertainty.
First-time homebuyers may benefit from down payment assistance programs that help them come up with the upfront funds they need. Condos and townhomes tend to have lower listing prices compared to single-family homes, making them more affordable options for many buyers.
If you are financially prepared, it is advisable to talk to a real estate agent to get a sense of the local market. The typical buyer would benefit more from a drop in mortgage rates than a drop in home prices. However, waiting for rates to drop may lead to increased competition among buyers.
Inflation and the Federal Reserve's policy have impacted borrowing costs, making homebuyers deal with high listing prices and high mortgage rates. It remains uncertain how far or fast mortgage rates will drop, with forecasts predicting a range from 6.1 percent to 6.5 percent by the end of 2026.
The 28/36 rule suggests that you should aim to spend no more than 28 percent of your monthly income on housing costs and no more than 36 percent on all debts. By adhering to this rule, you can ensure that you are making a financially sound decision when purchasing a home.
In conclusion, while mortgage rates are expected to decline, homebuyers should still be mindful of the increased competition in the housing market. It is crucial to consult with a real estate agent, understand the local market, and ensure that you are financially prepared before making a decision.
