Affordability Hits Best Level in 2.5 Years as Escrow Costs Surge 45% Nationwide

For the first time in more than two years, housing affordability is showing signs of improvement. 

According to the ICE Mortgage Monitor Report for October 2025, the average monthly principal and interest payment on a median-priced home fell to $2,148, or 30% of median income, down from 35% in late 2023. 

On paper, that’s the best level of affordability since early 2023.

But that number only tells half the story. A new report from Cotality shows that while falling rates and stabilizing home prices are helping on one side of the equation, surging escrow costs are quietly inflating the total cost of homeownership. 

And for millions of buyers, that’s erasing the savings those lower payments should have provided.

Byron Lazine unpacked both reports on yesterday’s Hot Sheet:

Affordability Isn’t the Whole Picture

ICE data shows a housing market that looks more approachable. Thirty-year mortgage rates averaged 6.26% in September, down from their 2024 highs, while home price growth has slowed to a modest +1.2% year over year. Inventory deficits have also narrowed to -14% compared to pre-pandemic norms, offering more options to buyers who have been sitting out.

That mix has helped improve what ICE calls the “payment-to-income ratio,” now sitting at its lowest point in two and a half years. Roughly a dozen of the 100 largest U.S. markets, mostly in the Midwest, have even returned to their long-run average affordability levels.

Still, affordability on paper doesn’t always match what homeowners are feeling. And that’s where Cotality’s research exposes a growing disconnect.

Escrow Costs Up 45% Nationwide

Cotality’s 2025 analysis found that average escrow payments, which cover property taxes and insurance, have risen 45% nationally over the past five years, with some Midwestern states seeing increases above 50%. In Nebraska, where home prices remain far lower than in coastal metros, the average escrow payment has surged 53% since 2019.

In some markets, these costs now exceed the principal and interest portion of monthly mortgage payments. For roughly 10% of homeowners, escrow payments are officially larger than the mortgage itself.

That inversion is especially painful in the same regions that have attracted migration for their relative affordability. States like Kansas, Wyoming, and South Dakota are dealing with double-digit jumps in both home prices and property taxes.

According to Cotality Principal Economist Archana Pradhan, this combination is reshaping the foundation of homeownership.

“Rising escrow costs are a growing financial burden for both new and existing homeowners. This financial strain can deter many from entering the housing market, while existing homeowners are getting squeezed, especially those on fixed incomes or tight budgets.”

Natural Disasters, Insurance, and the Escrow Crunch

Cotality ties much of the increase to surging home insurance costs linked to natural hazards, not just in Florida and California, but in the heartland. Hail and severe convective storms have made states like Nebraska and Kansas two of the most expensive places in the country for insurance coverage.

At the same time, property taxes have climbed 15.4% nationally since before the pandemic. In New York, that increase is 21%, driven by higher valuations and local levies. 

Even homeowners in wildfire-prone Utah, Colorado, and Montana are seeing rising escrow bills as insurance premiums climb.

Nebraska Congressman Mike Flood summed it up in a recent statement.

“Rising home insurance costs and escalating property taxes are delivering a one-two punch to Nebraska homeowners.”

When “Fixed” Isn’t Fixed

For generations, a fixed-rate mortgage meant predictability. But when the “fixed” portion of a monthly payment is overshadowed by an adjustable escrow account, stability disappears. 

Across much of the Midwest, Cotality found that nearly half of a homeowner’s total monthly housing cost now goes to taxes and insurance, expenses that can rise sharply from one year to the next.

That volatility is already showing up in performance data. ICE reported a 16 basis point increase in the national delinquency rate in August, bringing it to 3.43%. And Cotality linked the steepest delinquency increases to the same states where escrow costs have jumped 40% or more.

In a nutshell, affordability can improve on paper even as financial stability deteriorates in practice.

Rising escrow costs are now a leading indicator of housing insecurity, especially in markets once considered safe bets. And unless property tax and insurance inflation are brought under control, mortgage-rate relief will only mask a deeper affordability problem.

For those in the industry, this data is a reminder to look beyond rate sheets and price indices. Understanding a client’s full monthly cost, including escrow, is key to setting realistic expectations and protecting long-term ownership stability.