It’s not a stretch to say these are unprecedented times for the housing market. Home prices have surged 30% over the past five years, hitting a record $446,000 in 2025, while elevated mortgage rates and a shaky economy continue to complicate the picture.
The impact shows up in monthly costs. Mortgage rates have pushed payments higher, while rising insurance, inflation, and property taxes are adding even more pressure. These trends have created a slow and expensive housing market that strongly favors buyers. Homes are taking longer to sell (66 days in February 2026, up from 55 in 2025), and many Americans can’t afford a starter home.
More people are instead choosing to rent, which is now more affordable than buying in every major city.
1. America has a severe housing shortage
The primary reason houses are so expensive today is because there simply aren’t enough of them. Too many buyers are competing for too few properties, creating a supply-and-demand imbalance. The U.S. has been underbuilding homes since the Great Recession, when prices were in freefall and foreclosures were spiking, and hasn’t recovered.
Then came the pandemic-era homebuying frenzy, which exacerbated the problem by draining an already limited supply to record-low levels. Now, even though there are far more sellers than buyers in the market, both holding off due to high costs and very slow sales.
Today’s housing shortage estimates range from 1.5 million to 5.5 million. The shortage affects homes across all price points, but starter homes have been hit especially hard—largely because builders are choosing to build bigger homes and homeowners are staying put for longer.
2. Zoning laws have limited new construction
In many regions, WWII-era single-family zoning laws have made it difficult for developers to build housing at scale. For example, in California, which has one of the largest housing shortages, 96% of available land is zoned exclusively for single-family homes. These constraints reduce the ability to construct denser housing and contribute to higher home prices. A rise in construction costs has also played a role in de-incentivizing homebuilding.
The current administration has taken multiple actions to incentivize construction, including reducing environmental regulations and promoting building on federal land. But does not favor broadly updating single-family zoning, citing commitment to preserving the American suburb. And the anti-immigration stance will also likely push up building costs and raise home prices.
3. Investors own a larger share of homes
Housing investors have taken a growing share of the overall market. The more homes investors own, the fewer available for everyday buyers. The trend became clearest during the pandemic: As everyone else was rushing to buy homes, investors purchased a record $64 billion worth, or nearly 100,000 properties. This helped bring their total market share to 21% by 2022, meaning one in five homes were bought by an investor. Their share has since dropped as costs have skyrocketed but remains far above pre-pandemic levels.
However, housing investors present an interesting problem, since most of the properties they purchase end up as rentals or as part of build-to-rent communities. The current administration has made it a priority to ban large investors from purchasing single-family homes in an effort to get more existing for-sale supply into people’s hands.
Will house prices fall in 2026?
House prices likely won’t fall in 2026. The more likely scenario is that they will continue to grow more slowly. Prices have increased by about 1% year over year each month since mid-2025—slower than wages and one reason why affordability has improved over the last several months.
At the same time, though, a volatile economy continues to weigh on the market. Tariffs are driving up construction costs, immigration crackdowns could shrink the building workforce, and the Iran war and resulting oil price shock could lead to inflation, recession, or both. As a result, everyone is wary, making it more important than ever to prepare before entering the housing market.
