Falling mortgage rates — and home prices, in some markets — have brought affordability back to levels not seen in nearly three years, and futures markets suggest there’s more room for rates to come down in time for the spring homebuying season, according to the latest data from ICE Mortgage Technology.
With mortgage rates averaging 6.25 percent in mid-November, the $2,126 monthly mortgage payment for a homebuyer purchasing the median-priced home required 29.7 percent of the median household income — the lowest since early 2023, the December 2025 ICE Mortgage Monitor found.
“All 100 major U.S. markets have seen affordability improve year over year, with about 1 in 10 now back to or near long-term affordability averages,” ICE reported.
Affordability “remains stretched” relative to historical norms, requiring about 5 percent more of median household income than before the big runup in home prices during the pandemic, the report noted.
But improved affordability has already brought some potential buyers back, with applications for purchase mortgages rising to levels not seen in three years after adjusting for seasonal factors.
While home prices in the Northeast and Midwest are still on the rise, about a third of U.S. housing markets saw annual home price declines in November, with parts of Florida, Texas, Colorado and California showing the greatest weakness
But improving mortgage rates and tighter inventories in some markets have helped firm up home prices in recent months, with prices up 0.8 percent from a year ago nationwide in early November.
Only 11 of the 100 largest U.S. markets saw price declines from October to November after seasonal adjustments — the fewest in 18 months.
That could mean would-be homebuyers who are facing affordability issues will need mortgage rates to keep falling, with the payment-to-income (PTI) ratio for borrowers still near 30 percent.
The national PTI ratio for homebuyers putting 20 percent down on a median-priced home peaked at 35.1 percent in 2023, driven by pandemic-fueled price increases and soaring mortgage rates.
Although the recent retreat below 30 percent provides some relief to homebuyers, the PTI ratio was below 20 percent for much of the decade preceding the pandemic.
Futures contracts that track the ICE U.S. Conforming 30-year Fixed Index imply that investors were pricing in expectations as of Nov. 25 that mortgage rates will drop into the low 6 percent range next spring.
That aligns with the most recent forecast by economists at Fannie Mae, who predict mortgage rates will drop to 5.9 percent by the end of next year. Alternatively, forecasters at the Mortgage Bankers Association see less room for mortgage rates to come down, with rates on 30-year fixed-rate loans averaging 6.4 percent next year.
If mortgage rates do keep falling, ICE expects lenders to do booming refinancing business.
Applications to refinance hit a 3.5-year high in September and remained elevated through October and November, ICE reported.
With mortgage rates at 6.2 percent, 4.1 million homeowners have an incentive to refinance.
If rates keep falling to 6 percent, the number of borrowers who are “in the money” to refinance jumps to 5.8 million, ICE estimated.
“We’re now seeing the highest concentration of rate-and-term refinances in nearly five years, almost entirely driven by borrowers holding 2023-2025 vintage loans,” said Andy Walden, ICE’s head of mortgage and housing market research, in a statement.
Walden said the market “has become more rate sensitive as hundreds of thousands of borrowers move in and out of refinance incentive with small daily rate shifts.”
