U.S. Housing Costs Could Return to “Normal” Within 5 Years. Here’s What It Would Take.

• U.S. housing costs could return to “normal” within the next five or six years if mortgage rates fall and/or price growth flattens. 
• But the timeline varies widely depending on how rates and prices evolve–and it varies even more from metro to metro. 
• Costs are closest to returning to normal in San Jose, Oakland, Seattle, Portland and Austin, where home prices are falling and incomes are projected to grow. 
• Housing costs could take at least a decade to return to normal in half of the metros in this analysis–including the New York City area–largely because home prices in those places are rising faster than incomes.

Housing costs could hypothetically return to “normal” within the next five years if mortgage rates drop to 6% and home-price growth holds steady around 2.1%. Alternatively, housing costs could return to normal in just a slightly longer timeline–within about six years–if mortgage rates stay where they are today, about 7.5%, and home-price growth flattens. For this report, housing costs are measured using the mortgage-payment-to-income ratio; see below for our definition of “normal.”

If mortgage rates were to drop to the lowest bounds of our expectations–6%–and price growth were to flatten, housing costs could return to normal by February 2029, which is just over two years from now. That’s unlikely, but possible. 

On the flip side, it could take 10 years or more for costs to return to normal if mortgage rates remain stubbornly high, between 7% and 8%, and prices keep growing at their current annual rate of 2.1%. That’s also unlikely but possible: If rates stay that high, home-price growth would be difficult to sustain without a further decline in home sales. 

How We Define “Normal” — and How It Varies Based On Where You Live

This analysis explores hypothetical scenarios for U.S. home-price growth, mortgage rates and income levels, and uses those scenarios to estimate when housing costs could return to “normal.” For this report, “normal” means housing costs, defined as the mortgage-payment-to-income ratio, have returned to August 2018 levels. At that time, the national median monthly mortgage payment-to-income ratio was 30%—meaning the typical U.S. homebuyer would need to spend 30% of their household income on their monthly mortgage payment. This 30% threshold is a widely recognized benchmark for housing affordability. 

But at the metro level, “normal” does not necessarily mean “affordable;” rather, “normal” means the metro has returned to its 2018 level of home prices relative to incomes, even if the median home in some expensive metros remains out of reach for the typical household. Please see the end of this report for more details on methodology.

The analysis is theoretical, and the hypothetical scenarios should not be read as predictions. But they do represent real trends in home-price growth, mortgage rates and income growth, and any of them are possible. 

“Many house hunters feel stuck between two bad options: Stretch themselves to buy at today’s rates, or wait for lower rates only to see prices climb further out of reach,” said Redfin Senior Economist Asad Khan. “But prospective buyers shouldn’t get hung up on timing the market. These hypothetical scenarios should give would-be buyers and sellers some hope that the market can normalize with only modest changes in rates or prices. For buyers and sellers, that means the best time to make a move is when it makes sense for your finances and your life. If you’re a buyer who needs more time to save for a down payment, take more time. If you’re a buyer who has the means to buy at current costs and you find your dream home, don’t let today’s rates stop you.”

Housing Costs Are Almost Back to “Normal” in Parts of the West Coast 

The timeline for return to normalcy varies by region. 

Housing costs are closest to returning to normal in San Jose, CA. San Jose’s declining home prices (-3.2% year over year), combined with the fact that we expect strong future wage growth (6.5%), mean housing costs could return to normal in just over one year—even with today’s 7.5% mortgage rates. If rates were to fall to 6.5%, San Jose’s housing costs could return to normal by the end of this year. That’s largely due to stronger-than-average income growth, thanks to the Bay Area’s tech-fueled economy.

Note that San Jose is one of the places where “normal” doesn’t equal “affordable.” A median-earning Bay Area household would need to spend much more than 30% of their income to buy a home now, just as they would have in 2018. 

After San Jose, Austin, TX is the closest to returning to normal housing costs. With 7.5% mortgage rates, costs could return to normal by early 2028. That’s because home prices are down 2.9% year over year in Austin, while we project wages to post annual growth of 4.9%. Prices have fallen in Austin because of slow homebuying demand combined with lots of supply, which is largely the result of pandemic-era overbuilding. 

Next comes another Bay Area metro, Oakland, where housing costs could return to normal by spring 2028 with 7.5% rates. Two other West Coast metros, Seattle and Portland, OR, round out the top five metro areas where costs could return to normal soonest. 

For house hunters in San Jose, Austin and the rest of the places in the table below, falling home prices–or even weak price growth–means a big rate drop may not be necessary for housing costs to return to normal. And in places where we expect particularly strong income increases, a big rate drop may not be necessary, either. 

In San Jose, Austin and Oakland, housing costs could return to normal now if mortgage rates were to drop to 6%. 

Note that Oakland and Seattle–and Portland, to a lesser extent–all fall into a similar boat as San Jose: Housing costs may be relatively close to “normal,” but that doesn’t mean they’re affordable for the average household. Even though locals tend to earn more money than the average American, homes in those places are pricey; they’re out of reach for a lot of residents. In these metros, homeownership tends to be concentrated among relatively wealthy households.

It Could Take 10+ Years For Housing Costs to Get Back to “Normal” in the Northeast and Midwest

In about half of the metros we analyzed, it could take at least a decade for housing costs to normalize. Many of them are in the Northeast or Midwest, including Boston, the New York City area, Chicago and Milwaukee—and many are places where home prices are growing faster than the national average. 

In Chicago, for instance, home prices are up 5.5% year over year, while projected income growth is 3.9%. In Nassau County, NY (Long Island), home prices are up 5.3%, while projected income growth is 3.6%. It’ll take at least 10 years for housing costs to get back to August 2018 levels in both metros under all the mortgage-rate scenarios. 

Price growth is strong in most of these places because they’re generally more competitive markets than the West Coast or the Sun Belt. Nassau County is the strongest seller’s market in the nation, for instance, and Chicago is hotter than most other U.S. metros. 

“It may seem counterintuitive that housing costs could return to normal sooner in the country’s most expensive markets than in a place like Chicago or Philly, but it comes down to the direction of home prices and incomes,” Khan said. “In parts of the West, home prices are falling while we expect incomes to keep rising, gradually bringing the markets back to a baseline. But in many Midwest and East Coast markets, home prices are still climbing faster than incomes–so even if rates were to drop meaningfully, a buyer’s monthly payment wouldn’t return to something that feels normal anytime soon.”

Here are all the metros it could take at least a decade for housing costs to normalize, if mortgage rates stay between 6% and 8% and price growth continues at its current pace: 

• Anaheim, CA
• Baltimore, MD
• Chicago, IL
• Cincinnati, OH
• Cleveland, OH
• Columbus, OH
• Detroit, MI
• Fort Lauderdale, FL
• Indianapolis, IN
• Jacksonville, FL 
• Kansas City, MO
• Milwaukee, WI
• Montgomery County, PA
• Nassau County, NY 
• New Brunswick, NJ
• Newark, NJ
• New York, NY
• Philadelphia, PA
• Providence, RI
• St. Louis, MO
• Tampa, FL
• Virginia Beach, VA
• Warren, MI 
• West Palm Beach, FL

San Francisco Housing Costs Would Be “Normal” at 7.25% Rates—But Not at 7.5%

San Francisco is a unique case. As recently as the third week of September, when mortgage rates were sitting around 7.25%, local housing costs had just barely returned to normal. But that balance is fragile: Even if rates were holding steady in the low-7% range, San Francisoc’s home prices are climbing fast–9.7% year over year, thanks to AI-fueled wealth–which alone would be enough to push costs out of normal range fairly soon. 

And when rates hit 7.5%, costs soared well past normal. That’s despite local incomes that are projected to stay strong, growing 7.7% on the strength of San Francisco’s tech-driven economy. With 7.5% or 8% rates, it would take at least a decade for San Francisco’s costs to return to August 2018 levels, largely because home prices are growing so fast. Once rates hit a certain threshold, housing costs stay unaffordable for a long time–as long as home prices don’t lose steam or start falling. 

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 five 30-year mortgage rates, all of which align generally with economists’ forecasts for the next 3-5 years. 
• Household income is measured growing at a compound annual growth rate (CAGR) based on historical Census data (2015–2019).
• We examined the 50 most populous U.S. metro areas, and included the 46 with sufficient data in this report.