Investopedia Home Affordability Index: Affordability Improved in June

The home affordability picture brightened somewhat in June with both mortgage rates and monthly housing costs falling slightly. The improvement in affordability comes despite a slight decline in median monthly income.

The median monthly housing cost for homeowners slid $27 to $2,397 in June, down from May's reading of $2,424, according to data calculations. Meanwhile, the housing cost-to-income ratio improved slightly to 34.19% (from 34.56%), and Investopedia’s Home Affordability Index improved to 0.88 (from 0.87) during that time.

The typical home price for June fell $630 to $369,147 (from $369,777 in May). Meanwhile, average monthly mortgage interest rates decreased 12 basis points, pushing the combined cost of housing lower. Investopedia’s monthly payment figure includes principal, interest, taxes, and insurance for a median-priced home.

Housing Affordability

Affordability consists of three parts: income, cost, and the impact of housing costs on household budgets. Homeowners whose housing cost ratio exceeds 30% of their income are considered “housing cost burdened” by the federal government. Our affordability calculations use that same ratio. 

The housing cost ratio stood at 34.2%, according to our recent analysis of trends in June compared to a month prior. This means that 34.2% of median household income was spent on housing, above the official 30% threshold for affordability.

The Investopedia Home Affordability Index shows the relationship between housing costs and income. A reading of 1.0 or better means housing is affordable. Readings below 1.0 mean housing is unaffordable.

Income Required to Make a Median-Priced Home Affordable

We also calculate the gross income required to afford a median-priced home. For June, that figure was $7,991 (down from $8,082  a month prior). In other words, a household would need to bring in $7,991 per month for median housing costs to consume 30% or less of income.

Home Affordability Gap

This measure shows the difference between median income and the income required to afford a median-priced home. Over time, the affordability gap widens and narrows as interest rates and home prices move with their markets while income rises steadily.

The home affordability gap for June was $980. In practical terms, a median-income household would need an extra $980 monthly to bring housing costs down to the 30% affordability threshold, leaving less for essentials like food, transportation, or financial goals like college or retirement.

The narrowest gap in our data was $649, recorded in September 2024 when mortgage rates hit their most recent low. On average, the gap has held at $1,128 since June 2023.

Housing Costs

Our affordability charts and indicators are derived from housing costs—typical home price, average monthly interest rates, and additional housing costs like insurance and property taxes.

Typical Home Value

Principal and interest are the most significant parts of a homeowner's housing costs. Typical home value determines both. In June, the typical home price fell slightly to $367,147 from $369,777 a month prior.

Average Monthly Mortgage Rates

The combination of June's falling home prices and falling mortgage rates shaved $27 off monthly housing costs.

Other Housing Costs

We include estimates for homeowners’ insurance and property taxes that add about $450 to monthly housing costs.

Income

The last piece of the affordability puzzle is household income. For June, it stood at $7,011, $5 worse than the previous month’s figure of $7,016.

Methodology

We collect data from several sources to find the housing cost ratio and generate our home affordability index.

Typical Home Price

We rely on the national Zillow Home Value Index for home price data. We chose Zillow’s data because it is updated frequently and includes a range of housing types (single-family homes, condos, co-ops).

Average Mortgage Interest Rates

We average mortgage rates from Investopedia’s daily reporting based on Zillow's rate data. The rates quoted in our sample are based on an LTV of 80% or less (a down payment of at least 20% of the home’s sales price) and an applicant credit score range of 680-739.

Other Housing Costs

We estimate the costs of property tax and homeowners’ insurance. For property tax we take an average of the property tax rates levied by each U.S. state and compiled by the Tax Foundation. For homeowners’ insurance, we use the monthly estimate from Insurify. 

Median Monthly Income

We derive median monthly income from household income from the Census Bureau’s American Consumer Survey (ACS) (2023) and Average Weekly Earnings from the Bureau of Labor Statistics (BLS). The ACS figure is the baseline; we calculate a wage inflation adjustment from the BLS’s earnings report and apply that to the ACS baseline.