A new analysis report released by the real estate company Redfin suggests that if the rate of housing price increase stabilizes and mortgage rates fall to 5.5%, the housing costs in the United States could potentially return to a “normal” level by 2030.
In a report published by Redfin on Tuesday, September 2nd, it was described how people have been characterizing this year’s U.S. housing market as a “nightmare,” “extremely abnormal,” and “worrisome,” and these descriptions are not without reason: housing prices are nearing historic highs, mortgage rates remain high, and many regions across the country are experiencing a shortage of new housing developments to meet demand.
However, the report notes some positive signs in recent weeks, such as a slowdown in housing price increases and a beginning decline in mortgage rates. This brings a glimmer of hope to many – that owning a home may not be an unattainable dream forever.
Asad Khan, senior economist at Redfin, stated, “Achieving a return to normal housing costs doesn’t necessarily require a drastic drop in housing prices – stability may be sufficient. Buyers should not expect their affordability to return overnight, but trend lines indicate substantial progress could be made within a decade. If mortgage rates see a moderate decline and both housing prices and incomes remain stable, the housing market could feel significantly different by the end of the 2020s. We cautiously and optimistically believe that a return to normalcy may not be as distant as many fear.”
The report emphasizes that finding a unanimously agreed upon “normal” moment in the real estate market is impossible, but for the sake of discussion, analysts chose July 2018 as a reference point.
In July 2018, mortgage rates were around 4.5%, housing prices were increasing but still manageable, and there was relative balance between buyers and sellers. The national median monthly mortgage payment as a percentage of income had just reached 30% – meaning the typical American household would allocate 30% of their income towards mortgage payments after purchasing a home. This 30% threshold is widely recognized as a benchmark for housing affordability.
The report further explains that 2018 was selected as the point of reference because it predates the fluctuating housing costs driven by the COVID-19 pandemic in 2020.
Redfin also notes that achieving a “normal” level of housing costs does not necessarily mean that everyone can afford to buy a home, and standards may vary greatly between different cities. San Francisco is the only metropolitan area where housing costs have returned to July 2018 levels, with a median home price close to $1.5 million in July. While it has returned to normal levels, it still remains far beyond the reach of most people.