The Magic Number: How Far Mortgage Rates Must Fall to Unlock Affordable Housing

Housing affordability hits a breaking point—here’s the rate drop that’ll actually move the needle.

### The Rate-Cut Reality Check

Forget wishful thinking. The math doesn’t lie: today’s buyers need a seismic shift in borrowing costs just to crack the market. And no, the Fed’s baby steps won’t cut it.

### Why Your Down Payment Isn’t the Problem

Blame institutional investors, zoning laws, or that avocado toast tax—but until rates plunge, even six-figure earners get priced out. The ‘American Dream’ now demands a spreadsheet and a crystal ball.

### The Cynic’s Corner

Wall Street’s solution? Bundle unaffordable mortgages into ETFs and sell them as ‘innovation.’ Because nothing fixes high rates like financial alchemy.

Key Takeaways

• A Zillow study showed that mortgage rates in many major U.S. cities would have to drop well below current levels of around 6.7% to make housing affordable.
• Mortgage rates need to fall by two percentage points in places like Dallas, New Orleans, and Nashville to make borrowing costs accessible for homebuyers. 
• But in Pittsburgh, Pa., Birmingham, Ala., and other cities with low housing costs, mortgage rates could tick even higher and still remain affordable.

Some housing markets are so expensive that they WOULD still be unaffordable even if rates plummeted. In other areas, a small decline in rates would be enough to make homeownership possible for many buyers.

A Zillow report released last week found that mortgage rates nationwide would need to fall to 4.43% to make the typical home affordable for a median-income family. Currently, the average mortgage rate on a 30-year, fixed-interest loan is 6.72%. The study assumed a 20% down payment and defined affordability as a monthly mortgage payment less than 30% of the median household income.

New York, Los Angeles and Miami are examples of big cities with rising home values that wouldn’t be affordable even with a 0% mortgage rate. New York’s average home value is $808,970, while in Los Angeles it's just shy of $1 million.

Boston and Seattle are also pricey, and borrowing costs would have to fall to below 1% to achieve affordability. Dallas, New Orleans and Nashville would have to see rates drop by more than two percentage points in order for housing to be affordable there. 

Other areas of the U.S. have lower prices, which means that housing would still be affordable even if rates climbed above the current 6.7% level, Zillow said.

For instance, home prices in Pittsburgh, Pa., average a more manageable $244,928, well below the $369,147 average home value in the U.S. Buying a house there would still be attainable for most people even if rates jumped as high as 9%.

Home values in Birmingham, Ala., average $136,269, which means that the average buyer could still afford a home even if rates hit 7.62%. In Detroit, the average home value of $78,601 means a homebuyer can afford a mortgage rate of 7.02%. Buffalo, N.Y, Indianapolis and St. Louis are also cities with home values low enough to remain affordable if rates went above 7%.