A Study Says San Francisco's Housing Costs Have Returned To 'Normal' Levels – So Why Is It Still So Unaffordable?
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A recent report from real estate data firm Redfin says that San Francisco housing costs have returned to "normal" levels, but unfortunately, normal doesn't mean affordable.
That's because Redfin's baseline for "normal" was the U.S. housing market in July 2018. Although its report doesn't include home prices, historical data from Zillow's home value index shows that the average home in San Francisco was worth roughly $1.3 million during that period.
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By that point, a surge of Big Tech wealth had been driving San Francisco real estate prices into the stratosphere for well over a decade. But even if price spikes have slowed and the market is stabilizing, buying a house in San Francisco remains out of reach for most middle-class homebuyers. That's especially true when you account for the fact that interest rates are significantly higher today than they were seven years ago.
Redfin notes that pinpointing a single moment in the housing market that could be called "normal" is difficult. However, it landed on July 2018 as its baseline based on a number of key reasons.
Interest rates were around 4%, and data from that period showed home prices rising at a manageable rate in most of the U.S. There was also a relatively even split between buyers and sellers.
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Finally, the nationwide median monthly mortgage payment-to-income ratio was about 30%, a widely accepted benchmark for housing affordability in the U.S., meaning that a typical homebuyer would need to spend 30% of their income on their mortgage each month.
The mortgage payment-to-income ratio in San Francisco was more than 74% in July 2018, according to Redfin, but seven years later, a slowdown in home prices and rising income have dropped that figure down to 67%.
That's an improvement, but certainly not big enough to help San Francisco shed its status as one of America's most out-of-reach housing markets. There's also a chance that the recent surge in Big Tech's AI profits could turbocharge real estate there and send prices skyrocketing again.
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