Analysis says San Francisco’s housing costs have returned to ‘normal’. What does that mean?

A report recently released by real estate company Redfin makes a startling claim: San Francisco’s housing costs have returned to “normal.”

The City by the Bay, consistently ranked as one of the most expensive in the U.S., has seen signs that the housing market is leveling out: Home-price growth is slowing and mortgage rates are starting to fall, according to the report published last week.

The analysis uses a mortgage payment-to-income ratio, which finds that, after several years of rising costs, prices in San Francisco have returned to their July 2018 levels — at least when taking into consideration how much money locals make.

Oakland, too, is projected to return to “normal” this month if housing prices stay flat, according to Redfin’s analysis. No other city in the U.S. is projected to return to July 2018 levels either this year or in 2026, Redfin said.

But the findings do not mean these Bay Area cities are anywhere close to being affordable. Rather, the analysis shows that cities home to tech workers with fat salaries are returning to a pre-pandemic equilibrium, Redfin economists said.

“Tech-driven metros like those in the Bay Area, along with Austin, Seattle and Denver are seeing wages grow considerably faster than the national rate of 3.9%,” said Asad Khan, a Redfin senior economist, in the report. “At the same time, home price growth in these metros has cooled considerably from pandemic peaks.”

Housing costs across much of the U.S. in theory could return to a level of relative stability over the next few years, Khan said, but he cautioned that the report’s projections should not be taken as a certainty.

The metric of July 2018 housing costs Redfin bases its analysis on varies greatly from city to city, with households in San Francisco spending a greater share of their income on mortgages than much of the rest of the country.

In July 2018, the typical U.S. household purchasing a home would need to spend 30% of its income on their mortgage each month. In San Francisco, that share of income was far higher, at 74%. By contrast, in St. Louis that number was 18%, according to Redfin.

And the trend of stabilizing home costs does not reflect the reality for renters. The artificial intelligence boom in San Francisco — with companies like OpenAI forking over millions or even tens of millions for a single salary — is reportedly spiking rents and crowding out lower-wage tenants.

Median rent reached $3,069 for a one-bedroom apartment in August, and overall rent prices are up about nearly 11% year over year — faster than any other large city in the country — according to rental website Apartment List.