By Rob Sabo
The slight easing of interest rates in December, as the Federal Reserve initiated a 25 basis-point reduction, helped homeowners regain slightly more than $30,300 in purchasing power, real estate website Zillow said on Feb. 23.
Buying power is at its highest level since March 2022, Zillow said, and any additional interest rate cuts in 2026 could mean additional boosts to homebuyers’ purchasing options.
Kara Ng, senior economist at Zillow, said the increase in buying power could be the difference between settling and choosing when buying a home, especially for potential homeowners who have been pinched or even priced out by high home costs and elevated mortgage rates during the past few years.
“That doesn’t suddenly make this market affordable for everyone, but it does crack open doors that had firmly shut when rates peaked,” Ng said.
Affordability continues to pressure the nation’s housing market. According to the National Association of Realtors (NAR), existing home sales in January declined by 8.4 percent from the previous month, and sales were down 4.4 percent from year-earlier figures. The median sales price in January was $396,800, the NAR added—the thirty-first consecutive month that year-over-year home prices have increased.
Mortgage rates, meanwhile, fell below the 6 percent threshold for 30-year fixed mortgages on Feb. 23, dropping to 5.99 percent, Mortgage News Daily reported. Rates briefly cracked 6 percent in early January when President Donald Trump announced plans to buy $200 billion in mortgage bonds from Fannie Mae and Freddie Mac in an effort to reduce home prices in the United States.
Zillow said the increased purchasing power, coupled with rising incomes, has brought an additional 82,300 homes within homebuyers’ budgets. A median income household in the United States that raises a 20 percent down payment can now afford a home costing just over $331,000. Median household income in 2024—the last year it was calculated by the U.S. Census Bureau—was $83,730.
Declining mortgage rates have boosted buying power in the country’s costliest housing markets, Zillow noted. In San Jose, California, prospective homebuyers gained nearly $74,000 in purchasing power, while home shoppers in nearby San Francisco saw a gain of $56,115. However, the median household income in both cities is well above the U.S. average. In San Jose, it was $146,427 from 2020 to 2024, while in San Francisco, it was just under $141,000.
Housing inventory levels continue to rise, Zillow added. There were 1.1 million homes on the market in January, a 6 percent rise from the same month in 2025. With the slight easing of mortgage rates, nearly 447,000 of those homes are available to median-income buyers. That’s 40.3 percent of listings, up from 34.8 percent in 2025, Zillow noted.
The increase in purchasing power is also amplified in markets where housing prices have declined year over year. In Houston in January, there were 12,176 homes available for median-income buyers, up nearly 4,000 units from 2025. In Phoenix, there were 7,951 residential properties, an increase of more than 3,400 homes, Zillow said.
