In best-case scenario, ‘normal’ housing market still 2+ years out
A Redfin analysis finds the housing market could return to a 30% mortgage-rate-to-income ratio by early 2029 — but only if conditions start improving quickly.
Key points:
- The 30-year fixed-rate mortgage continued to climb this week, reaching a level that hasn’t been seen since November 2023.
- Unsurprisingly, mortgage applications and pending sales have both slowed significantly as most would-be buyers stay firmly on the sidelines.
- If conditions stay the same, a new Redfin report estimates that it could take 10 years for the housing market to return to “normal.”
The economic data necessary for a healthy real estate market continues to trend in the wrong direction, indicating that there likely won't be a final flurry of home sales activity before the upcoming holiday season.
Rates linger around 7.5%
The 30-year mortgage rate averaged 7.4% as of Oct. 8, according to Freddie Mac's weekly survey. That's the highest level in nearly three years and 1.1 percentage points higher than the weekly average rate recorded a year ago. Daily rates have meanwhile bounced around the past few days, with Mortgage News Daily — which uses a different set of metrics in gauging rates — pegging the 30-year rate at 7.5% on Thursday.
The reasons for the steady rise seen in recent months — a mix of inflation expectations, a broad bond market selloff and rising government debt — haven't changed, according to Joel Berner, senior economist at Realtor.com.
"First-time home buyers, without equity built up from a previous purchase are the most exposed to high mortgage rates, while buyers sitting on home value gains from the pandemic-era price runup have an advantage," Berner said.
Borrowers finding little incentive to act
As mortgage rates continue to climb, applications for loan financing are hovering at levels typically seen in the heart of winter. Mortgage application activity was down 4.2% for the week ending Oct. 2 compared to the week before, according to the Mortgage Bankers Association (MBA). Applications for home purchases are down 15% compared to a year ago, while the refinance index is down 56% for the same period.
"Very few homeowners have an incentive to refinance at these rates, and the jump in borrowing costs has caused many potential borrowers to step back from the purchase market," MBA Vice President and Deputy Chief Economist Joel Kan said.
New homes cheaper than existing homes
Weekly pending sales have slowed significantly, while inventory is steadily rising as homes sit on the market longer.
However, there is some positive news for buyers interested in a new home as builders continue to find ways to make attractive offers despite the current climate. According to new research from John Burns Research & Consulting, new homes are now 2% less expensive than existing homes. This is the first time in 52 years that such a pricing gap has been reported, according to CEO John Burns.
The data "doesn't even take into account the mortgage rate buydowns that the homebuilders are offering," Burns wrote in an Oct. 8 post on LinkedIn, adding that new homes "have never been a better value!"
When will 'normal' market conditions return?
Redfin economists crunched some numbers and found that whatever happens next with mortgage rates will make a big difference in getting back to "normal," which Redfin defines as having a mortgage-rate-to-income ratio of 30%. The ratio was at 34% nationally for new homes and 36% for existing homes in the second quarter of 2026, according to the National Association of Home Builders.
In the most optimistic scenario, a return to "normal" could occur by February 2029 if rates fall to 6% and price growth flattens — an "unlikely" change, Redfin's analysis noted, "but possible." If 30-year rates drop to 6% and annual home price growth stays around 2.1%, Redfin estimates that "normal" conditions would resume in about five years. But if mortgage rates stay stuck at current levels and home prices continue to rise, it may take the market another 10 years before that 30% ratio returns.
While Redfin noted that its analysis is theoretical and shouldn't be considered a prediction, it does show how market conditions could trend moving forward. "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," said Asad Khan, senior economist at Redfin.
"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," Khan said.