As housing inventory improves, so does affordability 

Home affordability improved significantly in April, according to a new report released on June 27, but the market is still in a position where regional differences are widening.

First American's monthly report found that annual affordability improved 4.4% nationally in April — one of the biggest increases of the past five years.

Affordability improves as supply grows: In 43 of the 50 largest markets, affordability improved. But drilling down to the metro level, the study found that the markets with the largest inventory increases also tended to have the biggest improvements in affordability. 

Miami, Orlando, Florida, and Austin, Texas, each had more than five months of housing supply in April and experienced significant improvements in affordability. In contrast, Buffalo, New York, Cincinnati and Hartford, Connecticut, had less than two months of supply and were among the few major metro areas that didn't have improved affordability over the past year.

"The affordability story this summer will largely hinge on where — and how much — inventory continues to rise," wrote Mark Fleming, chief economist at First American. In his analysis of the data, Fleming noted that Southern and Western markets in particular should see rises in affordability, while it'll be tougher for this to occur in the more competitive Midwestern and Northeastern markets.

What this means for home sales: Buyers remain sensitive to shifts in mortgage rates, which have hovered below 7% for much of this year. That sensitivity will likely dictate what happens this summer, with steady income gains and a home price growth slowdown helping incrementally, according to Odeta Kushi, First American's deputy chief economist.

"Still, mortgage rate fluctuations are likely to remain the dominant short-term driver of buyer behavior," Kushi said in an email to Real Estate News. "Sharp rate movements — especially downward — often spark bursts of activity."

So what is the magic number when it comes to mortgage rates? Kushi said rates close to 6% could be a psychological and financial tipping point for many buyers.

"But it's not just about hitting a specific number, it's also about stability and clarity," Kushi said. "Uncertainty is one of the biggest drags on the housing market. Whether it's around monetary policy, inflation, or the broader economic outlook, uncertainty tends to cause hesitation. Even if rates fall, more economic certainty is needed to restore momentum."