For generations, owning a home has been a key part of the American Dream, but with mortgage rates at 20-year highs and home prices sitting at record highs since early 2022, that dream for many is becoming a nightmare.
In 2000, the median home price was $119,730. Today, that number is $356,002.46, which means homes cost 197% more in 2025 as they did in 2000. In that same time, the median household income increased, too, but it only rose by 40% from $70,020 to $97,800. With housing prices severely outpacing income, the gap in home affordability grows ever larger.
We took a look at how income, home values, and mortgage rates have changed over the last 25 years to analyze home affordability and answer two key questions: how much harder is buying a home today than it was 25 years ago? And is there any hope that the current housing crisis will come to an end and restore the American Dream?
Homeownership has declined dramatically over the past 25 years, in large part because housing prices have increased 197%, while the median household income has only increased by 40%. That gap means down payments are harder to save for and monthly payments are harder to make, especially with increasing insurance costs and the bump in the general cost of living. Buying a home now is significantly more difficult than it was 25 years ago, but there could be an end in sight for hopeful first-time homebuyers.
Incomes Can’t Keep Up With Housing Costs
It’s easy to think that home prices are what drive home affordability, but what a home costs is only a small piece of the affordability puzzle. You also need to consider median household income and mortgage rates. These three metrics interplay to determine affordability.
The real estate landscape looked dramatically different in 2000 than it does today. The average 30-year mortgage rate sat slightly higher than today’s average, between 7% and 8%, but homes in the U.S. cost an average of just under $120,000, about a third of what they are today. With similar mortgage rates, that wouldn’t mean lower affordability if the median income followed a similar path.
But it hasn’t.
Household incomes rose by just 40% between 2000 and 2024. At the turn of the century, the median home price was $119,926, approximately 171% of the median household income. For comparison, in 2024, the median home price reached $345,963, which is about 354% of the median income. Accounting for the changes in both income and home prices, buying a home today is more than twice as expensive as it was in 2000 in relative terms.
States Where Buying a Home Became an Affordability Issue
.png)
Home prices and median household incomes vary by location, of course, so the gap between income and home price is based, in part, on where you live. The infographic above shows the changes by state to home price and household income over the past 25 years, and looking at that ratio, we can see where in the country home affordability has declined the most. The higher the ratio, the less affordable housing is.
Home prices increased most in Hawaii, California, Washington D.C., Maine, and Idaho between 2000 and 2025. Although the median household income also increased in these states in that timeframe, they’re still some of the least affordable places to live in today, with price-to-income ratios close to or over 5. Oregon, Massachusetts, and Washington State also top the list for the least affordable states, with a ratio over 5, although home prices didn’t increase as much.
In 2000, the housing-price-to-income ratio was just 1.72. Today, even in the most affordable states to live, that gap between home values and income has widened:
West Virginia: 2.2
Iowa: 2.3
Kansas: 2.4
Mississippi: 2.5
Ohio: 2.5
Down Payments Are Harder to Save
As home prices increase, the down payment requirements go up proportionally. Higher down payments are also a major barrier for first-time homebuyers and play a crucial role in housing affordability.
A 20% down payment is standard when purchasing a home to avoid private mortgage insurance (PMI) and secure a good mortgage rate. With a median home price of $119,730, a 20% down payment in 2000 would have been around $23,946. For ease of comparison, that was around 34% of the median household income.
Today, a 20% down payment with a median house price of $355,328 would be closer to $71,065, which is just under 73% of the median household income. For a down payment alone, first-time home buyers need to save for twice as long to remain competitive and avoid PMI.
To make matters worse, it has become increasingly important to put that 20% down to remain competitive in today’s seller’s market, where inventory is low and demand is high. Sellers take many factors into account when deciding on an offer, but many look for higher down payments, which suggest a strong offer that’s less likely to fall through.
If you can qualify for a mortgage backed by the Federal Housing Administration (FHA), you can put as little as 3.5% down, which would mean a little over $12,500 in today’s market. Unfortunately, a lower down payment means you’ll finance more, which drives up your monthly payment and could put your payment-to-income (PTI) ratio too high to qualify.
Mortgage Rates Today Are Lower Than 25 Years Ago
Mortgage rates today average around 7.09% for a 30-year conventional loan, so they’re a bit lower than they were at the start of 2000 when they averaged 8.08%. Lower mortgage rates always help make homes more affordable, so this is an advantage for homebuyers.
However, as we mentioned earlier, mortgage rates are just one part of the equation. Higher home prices mean larger loan amounts, which can still mean higher monthly payments despite lower annual percentage ratings (APRs).
For example, with a 30-year conventional loan and a 20% down payment, the monthly mortgage rate in 2000 would have been $708. That number in 2025 sits at $1,908, which is 2.7 times higher than it was 25 years ago. Even with a decrease in mortgage rates over 25 years, the annual mortgage payment climbed from 12.14% of the median household income to 23.65% in 2025.
It’s not all bad news, though, at least when it comes to mortgage rates. There are a variety of incentives available today to help improve housing affordability. Government-backed loans, VA loans, FHA loans, and USDA loans all offer lower down payment requirements, which can help bridge that initial gap into homeownership. Some also have relaxed lender requirements for first-time homebuyers to help make the transition from renting to buying a bit smoother. With lower affordability today than 25 years ago, these incentives are also more valuable.
In early 2025, President Trump also signed an executive order aimed at addressing the housing affordability crisis, which includes plans that could create more affordable housing opportunities on federally-owned land, as well as loosen efficient building regulations, which, reportedly, could reduce new construction costs by 25%. Whether or not that plan will work remains to be seen, but it’s at least a good sign that the federal government is aware of and working to address the housing affordability problem.
It’s Harder to Qualify for Mortgage
To make matters even more complicated, mortgage qualifications have also tightened since the housing market crash in 2008. The crash was fueled by many factors, including variable-rate mortgages and climbing housing prices, but loose and unregulated lending practices also contributed to the issue. In response, lenders have tightened requirements for mortgage qualifications, which now include higher credit score minimums and stricter debt-to-income (DTI) ratios.
While these are generally positive changes that will help ensure homebuyers can actually afford to make their monthly payments and reduce the foreclosure rate, they also make purchasing a home more challenging.
Not only does the average homebuyer need to save over 70% of their annual income for a down payment and pay nearly a quarter of their household income after that just to cover the monthly payment, but they also need to minimize debt and maintain a decent credit score in many cases.
Investor Influence is Driving Up Housing Costs
Couple all of these hurdles to homeownership with the low inventory and high demand, and you’ve got a recipe for disaster for buyers across the country.
So, that begs the question: why the low inventory? There are a few reasons. Homeowners are staying put in large part because of all of the issues we’ve already mentioned. Mortgage rates sitting higher than they have in over two decades and home prices at all-time highs mean it’s more expensive to relocate than it is to remain in a house you bought for less money at a lower APR. All of the things that make homeownership challenging for first-time buyers also apply to existing homeowners who might otherwise move.
Real estate investment is another underlying cause. According to Redfin, the number of homes bought by investors peaked in the third quarter of 2021. Investors make rentals more readily available, but they contribute to decreased for-sale inventory. Some billionaire investors park their wealth in real estate to take advantage of tax breaks and appreciation, which decreases the housing supply and can contribute to higher rent averages.
Based on data from Redfin, there were 109,027 homes purchased by investors in 2000 and 197,676 in 2024, an 81.3% increase. Last year, an average of 1.71 homes out of every 10 sold were purchased by an investor. That’s more than 17% of homes that went up for sale that didn’t become viable options for end users.
Homeownership in 2025: More Income, Savings, and Financial Stability Needed
Skyrocketing home prices are one thing, but since 2000, home value increases have outpaced median household income growth by nearly 500%. A standard 20% down payment today is 73% of the median income, more than double the 34% it totaled 25 years ago. Mortgage rates today are around 1% lower than they were in 2000, but the monthly payment is still almost three times as high as it was then.
It’s clear that something has to change. Experts contend that mortgage rates will continue to cool, but even if they fall to 25-year lows of 2.65%, monthly mortgage payments would still make up a higher percentage of annual income than they did in 2000, and that’s not even accounting for increases in property taxes, homeowner’s insurance, and other expenses related to homeownership.
The recent executive order could help bring property costs down and make affordable housing more widely available, but with so many moving parts, it’s hard for anyone to tell if the plan will work. On the bright side, buyer rebates and cash rewards are becoming more common throughout the industry, so all of these things together could begin to make housing more affordable and accessible overall.