(NEXSTAR) — Those waiting for the housing market to cool have seen modest signs of improvement in recent weeks, but a new report suggests it could take even longer before we see a “normal” market again.
In late August, the average rate on a 30-year U.S. mortgage dropped to 6.56%, its lowest level in 10 months. Still, that’s up from the 6.35% average rate a year ago. Meanwhile, home sales have been sluggish, with some sellers even taking their listings off the market. Treasury Secretary Scott Bessent has also revealed that the Trump administration is considering declaring a national housing crisis in the fall to help bring down costs for buyers.
Does that mean the U.S. housing market will return to some level of “normal?” There’s no easy answer to that, experts say, but there are some factors that can indicate how close — or far — we are from that.
What is a “normal” housing market?
In a new analysis, Redfin considered those factors and compared them to what it determined to be a “baseline” year of 2018. Back then, mortgage rates hovered around mid-4% and housing costs were considered “relatively manageable” despite rising prices. The typical household was spending about 30% of their monthly income on their mortgage payment, relatively in line with a common budgeting tip.
With mortgage rates hovering in the 6% range this year and home prices still relatively high, the median household is spending about 38.4% of their monthly income on mortgage payments today, Redfin determined.
To make its report, Redfin used economic forecasting that predicts the 30-year mortgage rate will drop to 5.5% by the end of the decade. Redfin’s report also estimates that U.S. household income grows by about 4% annually.
Should rates come down, but home prices climb at their current rate of 1.4% annually, the report suggests we may not see a “normal” housing market until November 2030. If the mortgage rates remain high — the report specifically used 6.7% — it would take until about December 2034.
The researchers considered other factors as well. If home prices instead saw negative growth of 2% year-over-year, and the 5.5% hypothetical mortgage became real, the mortgage payment-to-income ratio could reach a “normal” level by November 2027.
If prices don’t grow at all, but mortgage rates drop to 5.5%, we could see a “normal” market in January 2029. If rates stay around 6.7%, that would be pushed back to September 2031.
The housing market does, however, vary across the U.S.
Some cities are at or nearing “normal”
Redfin’s analysis determined that San Francisco has already reached its normal level, and others may be close behind.
“Even in those cases, however, it is important to remember that normal housing costs do not necessarily mean ‘affordable’ housing costs,” the report, authored by data journalist Mark Worley and senior economist Asad Khan, explains.
In San Francisco, the typical household can expect to spend a smaller portion of their monthly income on a median-priced home now than in 2018, but that portion still sits at a whopping 67%. Nearby Oakland is also within the normal range, if mortgage rates drop to 5.5%. And if they don’t, Redfin still estimates the city will be within that range this month.
Across the 50 major metros Redfin reviewed, 16 could see housing costs back to normal within five years, if the rate drops. If it doesn’t, only 11 cities would be so lucky.
In the best-case scenario, Austin, Texas, could see a normal housing market by December; San Jose, California, by February 2026; and Denver and Sacramento, California, by October 2026. If trends continue as they are, Austin (after San Francisco and Oakland) would be the first to return to normal, but not until March 2027.
Redfin also considered what housing costs in the 50 largest metros would look like if prices held steady and mortgage rates came down to 5.5%. In that case, only two cities in New Jersey, New Brunswick and Newark, would not return to normal.
Broadly speaking, cities in the Midwest, New England, and the Northeast would need to see mortgage rates come down before they could return to normal, and even then, it could take more than a decade.
“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 in the report, seen here. “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.”
What’s the market like right now?
The Midwest and Northeast have become seller’s markets this year, a recent Zillow analysis found. The Bay Area and Southern California were ranked the same, while cities throughout the South – specifically Florida- are considered buyer’s markets.
Nonetheless, it’s cities primarily in the Midwest and Ohio Valley that remain the most affordable for median-income residents, a separate Zillow report recently determined.
Rates, meanwhile, are unlikely to come down much this year. Economists generally expect the average rate on a 30-year mortgage to remain near the mid-6% range.
In a high-profile speech last week, Federal Reserve Chair Jerome Powell signaled the central bank may cut rates soon even as inflation risks remain elevated.
The Fed doesn’t set mortgage rates, though. And while a Fed rate cut could give the job market and overall economy a boost, it could also fuel inflation. That could push bond yields higher, driving mortgage rates upward in turn.
“While the Fed is likely to cut interest rates at their September meeting, it is not at all certain that mortgage rates are going to come down,” said Lisa Sturtevant, chief economist at Bright MLS. “As a result, buyers and sellers are still going to be cautious and the market could remain gridlocked this fall.”
The Associated Press contributed to this report.
