U.S. Housing Costs to Return to ‘Normal’ by 2030 With Stable Price Growth and Moderately Lower Rates

This year, the U.S. housing market has been described as “a nightmare,” “very unusual” and “alarming,” along with expletives we can’t write here. And with good reason: home prices are near record highs, mortgage rates remain elevated, and not enough homes are being built to meet demand in many areas of the country. 

But recent weeks have brought some signs that the housing market is trending in a positive direction: home-price growth is slowing and mortgage rates are starting to fall. 

Here’s a glimmer of the light at the end of the tunnel: housing costs could return to “normal” by 2030 if home-price growth stabilizes and mortgage rates fall to 5.5%. 

Today’s report explores hypothetical scenarios for U.S. home price growth, mortgage rates and income levels in which housing costs—measured using the mortgage payment-to-income ratio—would return to “normal.” 

Redfin Senior Economist Asad Khan said while the scenarios in the report are hypothetical and should not be read as predictions, they point to a time in the not-too-distant future where housing costs could return to a level of relative affordability.

“The path back to normal housing costs doesn’t require a crash in home prices—stability may be enough,” Khan said. “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.” 

What do you mean by “normal”?

It’s impossible to identify a single moment in the housing market that everyone can agree was “normal”—trust us, we tried. For the purpose of this exploration, we chose July 2018 as our baseline. 

In July 2018, mortgage rates were in the mid-4% range, and home prices were rising but still relatively manageable. The number of buyers and sellers was relatively balanced. The national median monthly mortgage payment-to-income ratio had just reached 30%—meaning the typical U.S. household purchasing a home would need to spend 30% of their income on their mortgage each month. This 30% threshold is a widely recognized benchmark for housing affordability. 

We also went with July 2018 because it was well before the pandemic sent housing costs on a rollercoaster ride starting in 2020. 

“Normal” does not necessarily mean affordable

But “normal” looks different in different areas of the country, and does not always mean “affordable.” In July 2018, the monthly mortgage payment-to-income ratio was 74% in San Francisco—far above the national level—while it was just 18% in St. Louis. That’s why our analysis doesn’t apply the national 30% benchmark everywhere. Instead, we measure how far each market would need to move to return to its own 2018 affordability level.

We compare costs using two 30-year mortgage rates: 6.7%, an approximate representation of the past three months of rate activity, and 5.5%, a hypothetical level aligning with economists’ general forecasts for the next 3-5 years. We also assume incomes keep growing at the current pace—3.9% nationally and at relevant rates locally. A full methodology is included at the end of the report.

Possible paths and timelines to “normal” housing costs

If mortgage rates fall to 5.5%, annual household income growth stays at 3.9% and home prices:

• Grow at current rates (+1.4% year over year), U.S. housing costs will return to normal by November 2030. 
• Stay flat year over year, housing costs return to normal by January 2029. 
• Fall 2% year over year, housing costs will return to normal by November 2027. 
• Grow 2% year over year,  housing costs will return to normal in July 2032. 

If mortgage rates remain at the current 6.7% level, annual household income growth stays at 3.9% and home prices:

• Grow at current rates (+1.4% year over year), U.S. housing costs will return to normal by December 2034. 
• Stay flat year over year, housing costs return to normal by September 2031. 
• Fall 2% year over year, housing costs will return to normal by August 2029. 
• Grow 2% year over year,  housing costs will not return to normal in the next 10 years. 

In most major metros, it will take longer for housing costs to return to “normal”

As mentioned earlier, local market conditions vary significantly across the U.S., meaning the scenarios for returning to normal look very different across the top 50 most-populous U.S. metros. In many of these major metro areas, normal housing costs won’t return in the next 10 years under any of the hypothetical scenarios used in this report. In others, normal housing costs may return relatively soon. Even in those cases, however, it is important to remember that normal housing costs do not necessarily mean “affordable” housing costs.

The prime example of this dynamic can be found in San Francisco—the only major U.S. metro where housing costs have already returned to normal. In other words, a San Francisco household earning the median income will fork out a smaller percentage of their salary each month to buy the median-priced  home today than they would have in 2018. That doesn’t mean homes in San Francisco are “affordable”—a household on the median San Francisco income would still need to spend an unrealistic 67% of their income to afford a median priced home (~$1.5 million). In San Francisco, this high ratio reflects the combination of high home prices and concentrated homeownership among relatively wealthy households. Nonetheless, the ratio tells us about how home prices generally relate to incomes within a metro area.

Still, 16 of the 50 most-populous U.S. metro areas will return to 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%. That number drops to 11 if mortgage rates remain at current levels (6.7%).

If home prices are flat in each metro year over year and mortgage rates are 5.5%, all but two of the top 50 U.S. metros—New Brunswick and Newark in New Jersey—will return to normal housing costs within ten years. If rates remain at 6.7%, 38 metros will return to normal.

Redfin Senior Economist Khan said the best conditions for metros to return to normal housing costs are the combination of high household income growth and low (or even negative) home price growth. 

“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.”

On the flipside, half of the top 50 most-populous U.S. metro areas will not return to normal housing costs within the next decade if home prices keep growing at their current rate—even if mortgage rates drop to 5.5%.

These metro areas are generally currently posting home price growth considerably above the national 1.4% rate, while also having household income growth near, or below, the national 3.9% rate.

“This year we’ve seen faster price growth in Midwest and East Coast markets, which makes them less likely to return to normal housing costs soon if we assume those growth rates will continue,” Khan said. “Back in 2018, however, it was the West Coast leading price growth and now those markets are generally on a clearer path back to normalcy. The housing market is constantly evolving, and today’s trends may look very different by 2030.”

Methodology

• This analysis uses the mortgage payment-to-income ratio as a measure of housing costs. 
  • This is the ratio of the monthly housing payment on a 30-year mortgage (mortgage, property tax, insurance) to the median household income for a given region. 
  • We assume a 20% down payment when measuring the mortgage payment. 
  • Please note that the property tax rate is the median rate observed in the baseline period in the relevant region. The insurance rate is fixed at 0.5% annually. 
  • Median home prices used for the calculation are seasonally adjusted.
• We compare costs using two 30-year mortgage rates: today’s 6.7% (an approximate level based on the past three months of rate activity) and a 5.5% rate that aligns generally with economists’ forecasts for the next 3-5 years. 
• We assume household incomes keep growing at the current pace—3.9% nationally and at relevant rates locally. Household income is measured growing at a compound annual growth rate (CAGR) based on historical Census data (2015–2019).
• We examined 46 of the top 50 metro areas with sufficient data for this report.