When will the housing market return to normal?

Housing bubbles, housing shortages, skyrocketing home values, historically low interest rates followed by rates that just can't seem to gain downward momentum — the 21st century has had its share of disruptions to the housing market.

Which prompts many would-be buyers and sellers to ask: When will the housing market return to normal?

To answer that question, we first have to define "normal."

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What does a normal housing market actually look like?

Based on long-run housing data, a "normal" housing market has three characteristics:

• Home prices appreciating 3-4% a year, roughly in line with income growth and inflation
• Average 30-year mortgage rates in the 5-7% range
• A typical household spending around 30% of its monthly income on principal, interest, taxes, and insurance

Here's how the past two decades stack up against that baseline.

Period	What was happening	Looked "normal"?
Pre-2008	Prices rising fast, credit widely available	No — overheated
2008-2012	Prices fell roughly 27% nationally from their peak	No — crashed
2013-2019	Slow, steady recovery; rates in the 3.5-4.5% range	Approaching normal by 2018
2020-2022	Record-low rates, home prices up sharply	No — pandemic anomaly
2023-2026	Rates near 6.5-7%, prices still elevated, low inventory	No — still adjusting

Right now, a typical household is spending closer to 38% of its income on housing costs, well above that 30% benchmark. Closing that gap is the practical definition of "returning to normal."

Related: For historical context on home prices, check out how home prices have risen since 1950 and what normal home appreciation looks like.

The last time the market was normal? 2018

Housing analysts consistently point to 2018 as the last "normal" year. Yes, average mortgage rates were still on the low side, hovering in the mid-4% range, but home prices were rising at a sustainable pace, and the typical mortgage payment consumed close to 30% of the median household's income, the standard affordability benchmark used across the industry.

2018 wasn't a perfect market. Some coastal metros were already expensive. But nationally, the relationship between income, rates, and prices was in balance.

The 2008 crash and its long recovery

To understand why 2018 mattered so much, it helps to look at what came before it. Home prices peaked nationally in 2006, then fell by about 27% over the following six years as the subprime mortgage crisis unfolded and foreclosures surged, sparking the steepest national home price decline since the Great Depression.

The recovery wasn't quick. It took until around 2016, a full decade after the peak, for national home prices to climb back above their 2006 high in nominal terms.

For homeowners who bought near the top of the market, that meant a decade of being underwater or breaking even before their homes were worth what they paid.

The pandemic broke the cycle again

Just as the market was settling into that post-2008 normal, the pandemic hit. Mortgage rates fell to record lows in response to the 2020 economic shock, bottoming out below 3% in early 2021.

Cheap financing, combined with a rush of buyers wanting more space, sent home prices climbing sharply through 2021 and 2022. In some markets, average homes appreciated by 15-20% in a single year.

That surge wasn't a new normal. It was an anomaly driven by an unprecedented combination of near-zero rates and a temporary shift in what buyers wanted and where they wanted to live. Many owners used that window to lock in historically low refinance rates, part of why so few are willing to sell today.

When the Federal Reserve began raising rates in 2022 to fight inflation, mortgage rates jumped from under 3% to over 6% in less than a year, one of the fastest upticks on record.

Home prices didn't fall to match, leaving the market with pandemic prices and post-pandemic rates at the same time.

Why today's market still isn't normal

Two forces are keeping today's market out of balance:

• Affordability: With rates well above the pandemic-era lows and prices still near their peak, the typical household now spends around 38% of its income on housing, compared with roughly 30% back in 2018.

• The mortgage rate lock-in effect: Millions of homeowners refinanced or bought at rates below 4% during 2020 and 2021. Selling now would mean trading that rate for something considerably higher, so many are staying put instead.

These two forces intertwine. Resistance to selling keeps inventory low, which keeps prices high.

If you're trying to decide whether to buy now or wait, it helps to see exactly where your own numbers land rather than relying on national trends.

A pre-approval could help you decide.

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When could the housing market return to normal?

Economists project a return to historically normal affordability sometime between 2028 and 2030, assuming mortgage rates gradually ease into the mid-5% range and home price growth continues to slow rather than reverse sharply.

Under that scenario, the path back doesn't require a crash. It requires stability, meaning several years of prices growing slower than incomes while rates come down enough to unlock some of the inventory currently sidelined by the lock-in effect.

That timeline won't look the same everywhere. Metro areas where price growth has already slowed and building has kept pace with demand are expected to reach normal affordability sooner. Others, especially expensive coastal markets with limited new construction, may not get there this decade even if rates fall as projected.

It's also worth being honest about the uncertainty here. Recessions, unexpected inflation, and shifts in Federal Reserve policy have all reshaped housing forecasts before, and any of them could speed up or delay a return to normal.

Frequently asked questions

Is the housing market going to crash again like it did in 2008?

Most economists consider a 2008-style crash unlikely. That crash was driven by risky lending, an oversupply of new construction, and widespread mortgage defaults. Lending standards today are considerably tighter, and current homeowners generally have more equity and better credit than borrowers did before 2008. Prices can still soften in individual markets, but the structural conditions behind the last crash aren't present the same way.

Why do mortgage rates feel so much higher than they did a few years ago?

Rates in 2021 were at record lows because of emergency measures put in place during the pandemic. When those measures were unwound and the Federal Reserve raised rates to fight inflation starting in 2022, mortgage rates rose quickly. Today's rates, while higher than the pandemic era, are actually close to the long-run historical average for a 30-year mortgage.

I make around $85,000 a year. Will home prices ever come back down to something I can afford?

Affordability is more likely to improve through slower price growth, rising incomes, and lower rates than through a sharp price decline. If your market sees inventory increase and rates ease even modestly, your buying power can improve without prices actually falling. It's worth running your specific numbers, since local conditions vary widely.

Should I wait for rates to drop before buying, or buy now and refinance later if rates fall?

Both strategies have tradeoffs. Buying now locks in today's price, with the option to refinance if rates fall later. Waiting avoids today's rate but risks higher prices or more competition if conditions improve. There's no universally correct answer.

I bought my house in 2021 with a 3% rate. Will I ever be able to move without losing that deal?

Eventually, yes. As rates decline over time, the gap between your current rate and a new one narrows, making a move less costly. Life circumstances also factor in. Many owners decide the benefits of moving outweigh giving up a low rate, especially as rates ease.

How long did it take for home prices to recover after the 2008 crash?

Nationally, it took about a decade. Prices peaked in 2006, bottomed around 2012, and didn't climb back above their 2006 high in nominal terms until roughly 2016.

What year is generally considered the last time the housing market was normal?

2018 is the year most frequently cited as the last normal baseline, based on the relationship between mortgage rates, home prices, and household income at the time.

Will mortgage rates ever go back down to 3%?

Probably not. Rates that low resulted from emergency pandemic-era policy, not typical market conditions. Most forecasts expect rates to ease gradually into the mid-5% range rather than return to pandemic-era lows.

What is your normal?

The big picture of the overall housing market sets the context for your home purchase or refinance, but it doesn't have to define it.

Doing what you can do, such as comparing lenders, improving your credit score, and saving up a down payment, can still pay off.

To see where you stand right now, get a pre-approval. Better's pre-approval requires only a soft credit check, so it won't hurt your credit score.

...in as little as 3 minutes — no credit impact