Housing affordability is improving as wages outpace home-price growth

Existing home sales came out yesterday showing slight year-over-year growth, but the headlines were all about home prices at an all-time high. However, most people weren’t focused on the fact that wages have been outpacing home prices for some time now, which is a positive.

Yesterday I went on Yahoo Finance to talk about how the housing market is getting healthier, and today’s episode of the HousingWire Daily podcas dives into that conversation as well. So lets talk about slower price growth being a positive for affordability.

History of home prices

It’s very normal for home prices to rise. In fact, if I exclude 2007-2011, home prices have not fallen by even 1% since 1942. In 1990, we were down 0.7%, and in 1991, we were down 0.02%.

However, as you can see below, we have had many years when real home prices fell, meaning the growth rate of prices is lower than the growth rate of inflation. This year is a good example of this, where the growth rate of prices is running below the growth rate of inflation and wage growth.

For example, assume home prices are up 1% this year, but wage growth is running at 3.5% and inflation is running at 3% — this kind of year helps with affordability over time. The fact that inflation is higher than home-price growth shows that home-price growth is actually soft this year. 

I am very excited about this data because the housing market is no longer savagely unhealthy, but healthy again. My 2025 price forecast was for 1.77%; we ended the year at 1.3%. Wages rose faster than home prices. So far this year, home prices are performing a smidge better than I forecast, which was at a -0.62%, but wages are still outpacing them. These facts are a positive for the housing market, not a negative.

Housing inventory

Even though inventory fell month-to-month and we aren’t back to normal inventory levels, per the NAR data, inventory is at levels I would never describe as low. My rule of thumb has been simple: as long as we have 1.52 million -1.93 million active inventory with over four months’ supply, we are good, and we can see that to be the case in 2025 and 2026.

Now, inventory is very seasonal, and in a few months it will see its traditional seasonal decline, but price growth cooling down because of this is a positive, not a negative. Normal inventory is between 2-2.5 million, and in yesterday’s report we stood at 1.56 million with 4.6 months of supply. For context, the peak in 2007 was 4 million. More supply means more choices for buyers, and sellers can’t dictate the terms as much, which slows down price growth and increases affordability. 

Conclusion

Home-price growth was 1.8% in the last existing home sales report, a bit firmer than my forecast for 2026, but still lower than wage growth, which is running at 3.5%. Over time, as long as this type of price growth continues, with wage growth outpacing it, it’s a huge plus.

Just remember how unhealthy home-price growth was in 2020, at 10%, and in 2021, at 19%. Now price growth below wage growth is just what the housing doctor ordered for this marketplace.