After taking a turn toward the worse last month, new home affordability in the U.S. moved tantalizingly closer to the upper threshold of affordability for the typical American household in June 2025.
Three factors combined to make that outcome happen. Most importantly, the initial estimate of the median new home sold in the U.S. during June 2025 dropped 4.9% from May 2025's revised estimate to $401,800. Second, median household income rose to an initial estimate of $83,641. Third, the average interest rate for the month came in at 6.82%, which is the same as for May 2025 but at least didn't go higher to offset the other improvements.
Together, these three factors reduced the monthly payment on a zero-down 30-year mortgage for the median new home sold to $2,283. This mortgage payment would consume 37.6% of the income earned by a household earning the median income in the U.S. for June 2025, which is the lowest level for this affordability measure recorded since the U.S. new home affordability crisis began after March 2022.
Since that figure is still above 36% of median household income for June 2025, which represents the upper threshold of relative affordability that lenders have historically used to determine whether they will loan money to a household that has no other debt. For households that do carry other debt, lenders prefer their monthly mortgage payments consume no more than 28% of their pre-tax household income. Mortgage borrowers have more financial resilience to deal with unexpected expenses when their mortgage payments fall below these affordability thresholds.
And while tantalizingly close to that upper threshold, it is still above it, which means the new home affordability crisis has entered its 40th consecutive month.
The latest update of our chart tracks the changing relative affordability of the typical new home sold in the U.S. is for the typical American household with respect to the mortgage lending industry's key affordability thresholds from January 2000 through May 2025.
Looking ahead to July 2025, we find the average interest rate for the average 30-year conventional fixed rate mortgage held declined slightly to 6.72%. Borrowing costs remain elevated but that small change provides a small tailwind for new home affordability. How new home affordability will change in July 2025 will depend greatly on how the median new home prices changes, which we won't know until near the end of August 2025.
Analyst's Notes
The affordability crisis for new homes has its origin in the high inflation that was unleashed by the Biden-Harris administration's policies in March 2021. Although it rose slowly at first, the cost of monthly mortgage payment began to skyrocket after December 2021. As a percentage of median household income, the monthly mortgage payment for a new home climbed above the key 36% threshold of relative affordability in April 2022, remaining above it in every month since.
We use the zero-down payment scenario to assess affordability because it provides a simple way to account for the opportunity costs of paying a down payment when buying a new home for many homebuyers. There are also several lending programs for qualified homebuyers that do provide a zero-down payment option to try to make buying a home more affordable, so it is also a realistic scenario on its own, though the majority of homebuyers do use money saved to make a down payment when they buy a home.
References
U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 24 July 2025.
U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 24 July 2025.
Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 6 August 2025. Note: Starting from December 2022, the estimated monthly mortgage rate is taken as the average of weekly 30-year conventional mortgage rates recorded during the calendar month.
Image Credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon highlighting the new home affordability crisis in the United States".
Labels: personal finance, real estate
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