Housing Market to Return to ‘Normal’ By 2030

Over the past several years, the housing market has struggled with high home prices and mortgage rates, but these trends have started to improve in recent weeks. As home price growth slows and inventory picks up, a recent report from home marketing platform Redfin suggest the housing market could return to ‘normal’ by 2030.

Using July 2018 as a baseline for normalcy due to its relatively low mortgage rates and greater affordability, the report explores hypothetical scenarios for U.S. home price growth, mortgage rates, and income levels in which the housing market could return to more stable conditions.

What would need to happen for housing costs to return to normal?

According to the report, there are a number of ways for housing costs to return to more stable conditions. Should mortgage rates fall to 5.5% and household income stays at its current annual growth rate of 3.9%, home price growth would need to grow at their current rate of 1.4% year-over-year for prices to return to normal by November 2030.

That time frame would accelerate to 2029 if mortgage rates fell to 5.5%, household income growth maintained its current rate, and home price growth remained flat year-over-year; a 2% decline in year-over-year price growth would bring home prices back to normal by November 2027 under the same rate and income circumstances. 

While nationwide home prices could return to normal in the next five years, buyers in the largest metros may have to wait a little longer

These scenarios vary broadly across the U.S. In many of the largest metros, normal housing costs won’t return in the next 10 years under any of the hypothetical scenarios used in the report. In other markets, however, normal housing costs could return even faster than predicted under these scenarios.

For instance, in San Francisco, housing costs have already returned to normal. In other words, that market's household earning the median income will need to shell out a smaller percentage of their salary each month to buy the median-priced home in 2025 than they would have in 2018. However, a return to normal pricing doesn’t necessarily equate to affordability in every market. In San Francisco, the median home price is still $1.5 million, meaning the median household there would need to spend 67% of their income to afford a home.

Other markets are expected to see normal housing costs—relative to 2018 levels—in the near future. For 16 of the 50 most-populous U.S. metro areas, housing costs are expected to return to normal within five years if prices and household incomes continue to grow at their current pace and mortgage rates fall to 5.5%. However, that number drops to 11 metros if mortgage rates remain at their current rate of 6.76%.

Normal conditions don't necessarily equate to affordability. Still, some metros are seeing affordability improve

• 10 Affordable Metros for First-Time Homebuyers: A recent report shows first-time buyers are having the most luck in mid-size cities where home prices are generally lower. 
• 14 Markets Where It’s More Affordable to Buy than Rent: On a nationwide basis, it has become cheaper to rent than own a home, but that's not necessarily the case when breaking down the data on a market-by-market basis.