Affordability is That The Question?

It’s a term we’re hearing a lot about lately. Specifically housing affordability as it relates to prices and the other costs associated with housing expenses. Clearly the numbers were off the charts during the pandemic period of 2020-2022. But affordability differs from household to household, depending upon income, expenditures, and wants and needs. That’s how it’s determined from a buyer perspective. However, there are statistics that help to determine housing affordability in our market.

Most buyers buy with a monthly payment in mind, PITI. The tax and insurance part of course varies based on area tax rate, and price of home itself. The principal and interest are more predictable for the buyer. In the past lenders were looking to have no more than 28% of the household income go towards the mortgage payment. Given current prices lenders have relaxed that number into the 30% range.

So how does the Austin area market stack up when it comes to affordability? The two charts below list the 30 major cities in the metro and indicate their affordability, based on set parameters.

There’s another number we can look at: price to income ratio. It now sits at 3.89%, meaning home prices are 3.89 times that of the median household income for the area. This is the lowest we’ve seen it since 2015. This ratio spiked over 5% between 2021-2022. This improvement reflects the correction we've seen in home prices throughout the year, rather than an increase local wages.

But pending contracts in decline is worrisome. We're currently where we were in January of 2025, and January tends to be a slower month relative to demand.

How is it then with so much available inventory driving prices down, an income to price ratio that has improved quite a bit and interest rates which have moderated, that we have a significant drop in buyer activity? It seems there's a disconnect between prices, affordability and consumer confidence. Perhaps consumer confidence or lack there of is more the culprit.

As we head into 2026, if buyer demand continues to decline we're likely to see further increases in supply putting further downward pressure on prices.