For three years, rising mortgage rates and elevated home prices locked millions of would-be buyers out of the market. Monthly payments climbed, budgets shrank, and starter homes slipped out of reach.
Now, a shift is underway, the numbers behind it are bigger than most people realize. A new analysis from Zillow finds that a buyer’s purchasing power has jumped by more than $30,000 compared to a year ago.
The calculation is based on real changes in mortgage rates and household incomes. The question is whether that extra room in your budget opens real doors.
Here’s what you need to know before the spring homebuying season kicks into gear.
Zillow reports a $30,302 jump in what buyers can afford
A median-income U.S. household can now comfortably afford a $331,483 home with a 20% down payment, according to Zillow’s February 2026 analysis. That’s $30,302 more than a year ago and the highest level of purchasing power since March 2022.
Three forces are driving the shift. Mortgage rates dropped from an average of 6.96% in January 2025 to 6.1% by January 2026, based on Zillow’s data. Household incomes edged higher. Home-price growth flattened.
Together, those factors cut the typical monthly principal-and-interest payment by 8.4% year over year. The recent low point for affordability was October 2023, when rates hit 7.62%, and a median household could only afford a $272,224 home.
How lower rates created room in your monthly budget
The rate environment has moved meaningfully over the past year. On February 26 2026, Freddie Mac reported the 30-year fixed-rate mortgage averaged 5.98% and that was the first time in three and a half years it dropped below 6%.
As of March 12, the 30-year rate averaged 6.11%, per Freddie Mac’s Primary Mortgage Market Survey. A year ago, the same rate sat at 6.65%. That half-point difference matters.
What rate relief looks like in dollars
On a $330,000 home with 20% down, moving from 6.65% to 6.11% saves you roughly $100 per month in principal and interest. Over a 30-year loan, that adds up to more than $36,000.
Freddie Mac chief economist Sam Khater noted the market is responding. “Existing-home sales increased 1.7% in February,” Khater said. “Purchase applications also increased this week, a welcome sign as buyers enter the spring homebuying season.”
The cities where buyers gained the most ground
The biggest dollar gains showed up in the most expensive housing markets. Even small rate drops translate into large budget differences in high-cost metros.
Top metro areas by year-over-year purchasing power gain:
- San Jose, California: nearly $74,000
- San Francisco: $56,115
- Washington, D.C.: $48,881
- San Diego: $46,506
- Boston: $46,390
Median household incomes in San Jose and San Francisco exceed $140,000, far above the national figure. The percentage gain in your budget matters more than the raw dollar amount when comparing markets.
82,300 more homes now fit within your price range
Purchasing power is only useful if there are homes available to buy. Zillow found that roughly 82,300 additional homes have come within budget for median-income households compared to a year ago.
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About 447,000 affordable listings were on the market in January 2026. That represents 40.3% of total listings, up from 34.8% a year earlier. Total housing inventory reached 1.1 million homes, a 6% annual increase.
Markets with the biggest jump in affordable inventory:
- Houston: nearly 4,000 more homes within reach for median earners
- Phoenix: more than 3,400 additional affordable homes
- Dallas, Miami, and Atlanta also added thousands of qualifying properties.
Markets where home values declined over the past year delivered a double benefit. You get both cheaper financing and lower prices in those areas, stacking the affordability gains.
First-time buyers still face steep barriers despite the gains
The affordability improvement is real but it hasn’t leveled the playing field for everyone. The National Association of Realtors’ 2025 report found that first-time buyers made up just 21% of all purchases. That’s the lowest share since tracking began in 1981.
The typical first-time buyer is now 40 years old, another record high. Before the Great Recession, first-timers consistently represented about 40% of the market.
Why the entry barrier remains high:
- All-cash purchases hit a record 26% of sales, favoring equity-rich repeat buyers over first-timers who need financing.
- A median-income household still devotes 32.3% of income to a typical mortgage payment, per Zillow.
- Zillow’s $331,483 figure assumes a 20% down payment, but the median first-time buyer only puts down 10%, according to NAR.
NAR deputy chief economist Jessica Lautz put it clearly: the low first-time buyer share reflects a market starved for affordable inventory. A $30,000 gain in purchasing power helps. It does not solve the structural shortage.
Zillow expects rates to keep falling through 2026
Zillow forecasts that mortgage rates will continue drifting lower through 2026. The company projects existing-home sales rising 4% this year compared to 2025. Further rate declines would unlock additional purchasing power for home shoppers.
But rates are not guaranteed to fall in a straight line. Geopolitical tensions, including the ongoing conflict in Iran, have pushed 10-year Treasury yields higher in recent weeks. That directly affects mortgage pricing. The 30-year rate ticked up from 6.00% on March 5 to 6.11% on March 12, per Freddie Mac.
Related: Zillow predicts mortgage rate, housing market change
J.P. Morgan’s 2026 housing outlook projects rates staying above 6% even with potential Fed cuts. The direction is favorable, but a fast return to the sub-5% environment of 2021 is not on the table.
How to use this window before competition heats up
Improved purchasing power creates opportunity. But only if you move strategically. Here’s how to position yourself heading into spring 2026.
Steps to take now:
- Get preapproved, not just prequalified: Preapproval verifies your financials and shows sellers you’re serious. It also locks your rate for a set window.
- Use Zillow’s BuyAbility tool or a similar calculator: Plug in your actual income, credit profile, and current rates. Generic estimates often overstate what you can handle.
- Compare at least three lenders: Freddie Mac data shows that getting one extra quote saves an average of $600 over the life of the loan. Three quotes can save $1,200.
- Watch your debt-to-income ratio: Lenders typically cap this at 43%. Even if you qualify, stretching beyond 35% of gross income on housing leaves little room for emergencies.
Don’t wait for a “perfect” rate. If you can afford the payment today, you can refinance later when rates drop further. But you can’t recover time spent sitting on the sidelines while prices and competition increase.
The fine print behind the $30,000 headline
Zillow’s headline number is powerful. But a few assumptions shape the math. You should understand them before making any decision.
Key caveats:
- The analysis assumes a 20% down payment. Most first-time buyers don’t have that. With 10% down, your payment is higher, and you’ll owe private mortgage insurance.
- The calculation excludes property taxes and homeowners’ insurance. Both have risen sharply in many states. In some markets, insurance alone jumped 20–40% since 2022.
- A 32.3% income-to-mortgage ratio falls within lender limits. But financial planners generally recommend keeping total housing costs below 28% of gross income.
- Rates can reverse quickly. Inflation surprises, geopolitical escalation, or a hawkish Fed could push rates back above 6.5%.
The $30,000 gain is real. Just make sure you’re calculating your personal budget before making a move. Your numbers may look different from the national median.
Related: Iran war causes mortgage rate surge
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