The U.S. housing market is currently in a holding pattern, with home sales stalling and new construction sharply declining. Younger generations are hesitating to buy their first homes, while affordability remains at nearly record lows. However, Washington is taking action. The most significant federal housing policy initiative in over a decade is advancing through Congress, potentially unlocking a wave of affordable housing, according to a recent note from Yardeni Research.
“While household net worth and liabilities look stable, housing affordability is breaking records in all the wrong ways,” Yardeni Research reported, highlighting a lack of interest among younger and low-to-middle-income buyers, alongside a slowdown in new household formation.
Wealth Is Up, But Buyers Are Hesitant
Total household net worth reached $169.3 trillion in Q1, driven by steady home price appreciation and strong equity markets. Disposable income per household is near record highs, and mortgage delinquencies remain low compared to other loan types.
Despite these solid fundamentals, homebuyers are staying on the sidelines. The Pending Existing Home Sales Index has plateaued, and the New Housing Market Index is trending down. To entice buyers back into the market, either lower mortgage rates, lower home prices, or ideally both are needed.
Affordability Crisis Creates Cost Burden
About 20.3 million homeowner households, or 24%, now spend over 30% of their income on housing and utilities. Renters are facing even greater challenges, with nearly half of all renter households experiencing cost burdens — a new high.
The median price for existing single-family homes reached a record $415,000 in June, while 30-year fixed mortgage rates remain elevated at 6.7%, far above the pandemic-era lows that previously spurred demand. Harvard’s Daniel McCue noted, “We’re now seeing middle-income households priced out of ownership and rentals in areas that were once considered accessible.”
Sellers Hold Tight, Inventory Remains Low
The housing supply crunch continues as many potential sellers cling to the ultra-low mortgage rates they secured years ago, hesitant to upgrade in a high-rate environment. Existing home inventory rose slightly to 1.4 million but is still well below pre-pandemic levels. Annualized existing home sales dropped to 3.9 million units in June, nearing lows last seen in 2009.
New Home Construction Stalls Amid Rising Costs
Relief on the supply side is slow to materialize. New home inventory increased to nearly a 10-month supply in June, indicating an oversupply relative to current sales. Sales slipped 6.6% year-over-year, with buyer traffic remaining subdued. Builders are reducing output due to labor shortages, rising material costs, and tariffs that squeeze margins and affordability. New housing starts fell 0.5% year-over-year, hitting a 12-month low for single-family homes.
Younger Buyers Locked Out, Household Formation Slows
Many Generation Z and millennial buyers are delaying or abandoning home purchases altogether. Census data reveals that 30.2% of 25- to 34-year-olds still live with their parents, exacerbating the slowdown in new household formation and contributing to demand challenges.
A Glimmer of Hope on the Horizon?
After more than a decade without significant federal housing reform, bipartisan momentum is growing to tackle these issues. The ROAD to Housing Act, which recently passed unanimously in the Senate, aims to incentivize zoning reform and modular housing — crucial steps toward unlocking more affordable options. Bloomberg described it as “a ray of hope” for buyers and builders caught in the current market stalemate.
