Redfin Shows How U.S. Housing Costs Could Return to ‘Normal’ by 2030 Under Certain Conditions
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Redfin, Seattle, released a new report exploring how housing costs could return to “normal” by 2030 if home-price growth stabilizes and mortgage rates fall to 5.5%.
The report is all based on hypotheticals, but provides a look at what conditions could normalize housing costs–to a July 2018 baseline–over the next half-decade.
“The path back to normal housing costs doesn’t require a crash in home prices–stability may be enough,” said Redfin Senior Economist Asad Khan “Buyers shouldn’t expect affordability to snap back overnight, but the trend lines point to real progress within this decade. If mortgage rates decline modestly, and price and income growth hold steady, the market for homebuyers could feel much different by the late 2020s. We are cautiously optimistic normalcy may not be as far off as many might fear.”
Looking back to July 2018, mortgage rates were in the mid-4% range, home prices were rising at a stable pace, the ratio of buyers to sellers was relatively balanced and the national median mortgage payment-to-income ratio was at 30%.
To be clear, Redfin noted, “normal” doesn’t automatically mean “affordable,” particularly given the variance between different areas. Instead, the authors measured how far each market would need to move to return to its own 2018 affordability level.
With those constraints in mind, Redfin looked at a hypothetical scenario where mortgage rates fall to 5.5% and annual household income growth stays at 3.9%.
If home prices grow at current rates (1.4%) year-over-year, Redfin posits U.S. housing costs would return to normal by November 2030. If they were flat, housing costs would normalize by January 2029; if they fell 2% year-over-year, housing costs would normalize by November 2027; and if they grew 2% year-over-year, housing costs would return to normal by July 2032.
Another hypothetical scenario: If the mortgage rates remain at their current 6.7% and annual household income growth stays at 3.9%.
In that situation, if home prices grow at their current rates (1.4%), U.S. housing costs will return to normal by December 2034. If they stay flat year-over-year, housing costs will normalize by September 2031, if they fall 2% year-over-year, housing costs will return to normal by August 2019, and if they grow 2% year-over-year, housing costs won’t normalize anytime over the next decade.
The report cautioned, however, that the hypotheticals do vary widely by different metro areas. But, 16 of the 50 most-populous U.S. metro areas will return to their normal housing costs within five years if prices and household incomes continue to grow at their current pace and mortgage rates fall to 5.5%, with San Francisco already deemed to be back at its definition of normal.
“Tech-driven metros like those in the Bay Area, along with Austin, Seattle and Denver are seeing wages grow considerably faster than the national rate of 3.9%,” Khan said. “At the same time, home price growth in these metros has cooled considerably from pandemic peaks. We have already seen housing costs return to 2018 levels in San Francisco because wages have kept growing at a high rate at the same time that home price growth stabilized.”
