U.S. Housing Supply Still Lagging Demand

WASHINGTON — The U.S. has been short of the homes it needs to meet its growing population for more than a decade, driving up prices and shooting down the dreams of millions of would-be buyers.

While buying a starter home was once a safe and attainable way to build wealth, rising home prices, falling construction rates and economic volatility have left the U.S. without nearly enough affordable housing.

Daryl Fairweather, chief economist at Redfin, said there are two basic ways of looking at the depth of the affordable housing shortage: how much of a household's income it costs to buy a home of average price, and the share of homes for sale in a region that are affordable for someone making the local median income.

For prospective homebuyers, Fairweather said, one way focuses on "how much are they going to have to spend out of their earnings to afford a home," while the other focuses on "what share of homes in the market are actually priced that way."

The U.S. has been able to make a small dent in the housing shortage, as a construction boom set off amid the COVID-19 pandemic is gradually adding more houses to the market.

But housing prices have risen far faster than supply as a combination of low pandemic interest rates and societal changes fueled a historic increase in housing costs.

"We see an improvement that's encouraging and very promising, and we want to see even more inventory out there," said Nadia Evangelou, senior economist and director of real estate research for the National Association of Realtors® (NAR).

"However, we are far away from a balanced market."

Median home sales price

After skyrocketing during the COVID-19 pandemic and economic recovery, housing prices have drifted back down slowly amid higher interest rates and slightly more supply.

The median home price is a benchmark for how much a U.S. home costs, which is largely driven by the gap between housing supply and homebuyer demand.

The median home price in February was $414,500, according to the Census Bureau, down from $427,400 in January and $420,900 a year ago.

The average home price, which reflects a wider range of factors, was $487,100 in February, down from $507,900 in January and $509,000 a year ago.

"When new households are formed faster than the increase in the housing stock, the share of vacant homes falls, putting upward pressure on prices and rents," wrote Orphe Divounguy, senior economist at Zillow, in a 2024 research report.

Divounguy estimated that in 2022, there were 4.5 million individuals or families who were not living in their own houses or rental units, despite preferring to do so.

"Building more homes is of course an obvious step toward chipping away at this persistent shortage," Divounguy wrote.

Housing construction starts

Housing construction rates have improved in the wake of the pandemic — particularly in the South and West, where a housing boom and the rise of remote work fueled a major demographic shift toward the Sun Belt.

Housing starts — the beginning of new housing construction projects — rose 11.2% in February, according to the Census Bureau, a rate that would yield 1.5 million new homes built per year.

Single-family housing starts rose 11.4% in February, the highest rate in a year, but are primarily happening in just one part of the country. While housing starts were up 20.2% over the past year in the West, they were down 4.7% in the Northeast, 21.5 in the Midwest and 8.3% in the South.

The number of homes under construction was also down in February from a year ago, falling 6.7% to 640,000 homes.

Despite the modest improvement in some places, homebuilders are bracing for those numbers to slip even further.

"While solid demand and a lack of existing inventory provided a boost to single-family production in February, our latest builder survey shows that builders remain concerned about challenging housing affordability conditions, most notably elevated financing and construction costs as well as tariffs on key building materials," said Buddy Hughes, chair of the National Association of Home Builders (NAHB), in a statement.

Jing Fu, NAHB senior director of analysis and forecasting, said the group expects single-family housing starts to remain flat this year amid concerns about tariffs and a slowing economy.

Affordability ratios

The increase in housing inventory has also not been spread equally among income levels, Evangelou said.

"Inventory is improving, so that's very good news. What we want to see of course is inventory to increase in all price levels," she said.

Evangelou said that according to NAR research, a person or family with an income of $75,000 can afford a home worth up to $255,000, which covers 21% of current listings. Before the COVID-19 pandemic, roughly 49% of homes would be affordable at that income level.

"That [inventory] increase is mostly happening in the mid- and upper-price tiers. For buyers earning less than $50,000 a year, who are looking for homes for less than $170,000, conditions have actually worsened compared to a year ago, so there are fewer affordable listings for them today compared to a year ago."

The gap between how much Americans must earn to buy a home and how much they need to rent an apartment is also widening.

Redfin calculated that the average American needs to make $116,633 each year to afford a median-priced home, 81.8% more than the $64,160 needed to afford a typical apartment.

"Demand isn't really going anywhere, and maybe demand will be weaker if we're entering into a recession, but the number of people that need homes is fundamentally not going to go down," Fairweather said.

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