Key facts
- Housing affordability may take more than a decade to return to normal in the US.
- Redfin defines 'normal' affordability as the average mortgage payment-to-income ratio falling to 30%.
- The market has not met this 30% threshold since August 2018.
- In one scenario, with mortgage rates at 7%-8% and home prices rising 2.1% annually, affordability would take over 10 years to normalize.
- A more optimistic scenario with mortgage rates at 6% and flat home prices could see affordability return by 2029.
- The average 30-year fixed mortgage rate was 7.4% last week, the highest in about three years.
- US home prices remain near record highs, with the S&P Cotality Case-Shiller US National Home Price Index reaching a record 337 in July.
Housing affordability in the US is expected to remain challenging for over a decade, according to a new report by Redfin. The real estate company presented several scenarios for how long it might take for the market to return to what it defines as 'normal' levels.
Redfin defines 'normal' affordability as the average mortgage payment-to-income ratio falling back to 30%, a common guideline for housing costs. The company noted that the market has not met this threshold since August 2018, when interest rates were lower.
In one scenario, Redfin projected that if mortgage rates remain in the 7%-8% range and home prices continue to grow at 2.1% annually, it could take at least 10 years for affordability to normalize. However, the firm described this scenario as unlikely, given the difficulty in sustaining home price growth at current paces with elevated rates.
A more optimistic outlook, where mortgage rates fall to 6% and home prices stay flat, could see the average mortgage payment-to-income ratio return to 30% as soon as 2029, Redfin estimated.
Recent data shows the average 30-year fixed mortgage rate at 7.4%, its highest in approximately three years, driven by rising bond yields and the Federal Reserve's efforts to combat inflation. Home prices, meanwhile, are near record highs nationally, attributed to tight overall supply. The S&P Cotality Case-Shiller US National Home Price Index reached a record 337 in July.
Redfin also noted signs that the market is shifting slightly in favor of buyers. In August, about 45% of home sales included seller concessions, with 16% of those also involving a price cut.