Redfin analysis shows varying timelines for housing costs to return to pre-pandemic levels across different metros
Source: Original report
U.S. housing costs may return to pre-pandemic "normal" within five to six years, according to a new analysis from Redfin. However, the timeline varies significantly depending on mortgage rates, home price growth, and local income trends, with some metros facing a much longer wait.
The analysis defines "normal" as housing costs—measured by the mortgage-payment-to-income ratio—returning to August 2018 levels. Nationally, the median monthly mortgage payment-to-income ratio was 30% at that time, a widely recognized benchmark for housing affordability.
Regional Disparities in Timeline
Metros where home prices are falling and incomes are projected to grow are closest to returning to normal housing costs. San Jose, CA, leads the pack, with housing costs potentially normalizing within a year due to declining home prices (-3.2% year over year) and strong expected wage growth (6.5%). Austin, TX, Oakland, CA, Seattle, and Portland, OR, round out the top five metros where housing costs could return to normal sooner.
In these markets, falling or stagnant home prices and strong income growth are gradually bringing housing costs back to baseline, even without significant mortgage rate drops. For instance, in San Jose, Austin, and Oakland, a mortgage rate reduction to 6% could potentially restore normal housing costs immediately.
Decade-Long Wait in Some Metros
In about half of the metros analyzed, it could take at least a decade for housing costs to normalize. Many of these markets are in the Northeast or Midwest, including Boston, the New York City area, Chicago, and Milwaukee. In these regions, home prices are growing faster than incomes, pushing the timeline for normalization beyond 10 years.
For example, in Chicago, home prices have increased by 5.5% year over year, while projected income growth is 3.9%. Similarly, in Nassau County, NY, home prices are up 5.3%, with income growth at 3.6%. In these markets, even if mortgage rates were to drop meaningfully, a buyer's monthly payment wouldn't return to "normal" anytime soon.
San Francisco: A Unique Case
San Francisco presents a unique situation. As recently as late September, when mortgage rates were around 7.25%, local housing costs had just returned to normal. However, this balance is fragile. With home prices climbing fast (9.7% year over year) and mortgage rates at 7.5% or higher, it would take at least a decade for San Francisco's costs to return to August 2018 levels.
What This Means for Buyers and Sellers
Redfin Senior Economist Asad Khan suggests that prospective buyers shouldn't focus on market timing. House hunters often face a dilemma: they can either buy now at current rates or wait for lower rates, risking higher prices in the future. Khan's advice is that potential buyers and sellers can find encouragement in these scenarios, as market normalization may not require substantial rate or price changes.
For buyers and sellers, the best time to make a move is when it makes sense for their finances and life circumstances. If a buyer needs more time to save for a down payment, they should take it. If a buyer has the means to purchase at current costs and finds their dream home, they shouldn't let today's rates stop them.
