Underbuilding, missing households and policy challenges kept the ownership ladder out of reach
The US housing market entered 2026 still short more than 4 million homes, with new construction in 2025 once again failing to keep up with household formation and long‑running demand from Millennials and Gen Z, according to Realtor.com’s latest Housing Supply Gap Report.
The report estimated a cumulative deficit of 4.03 million homes in 2025, up from 3.8 million a year earlier, even as completions stayed historically elevated.
At the same time, 1.82 million young households were “missing” as high costs and thin inventory delayed independent living.
“Even when annual construction and household formation are roughly balanced, the market is still digging out from more than a decade of underbuilding,” said Danielle Hale, chief economist at Realtor.com.
“A supply gap exceeding 4 million homes underscores how deeply rooted the shortage has become. Without a sustained and targeted increase in housing supply, particularly in areas with strong job growth and persistent demand, affordability challenges will continue to sideline many would-be buyers.”
Affordability squeeze reshaped the first-time buyer
In 2025, household formations reached about 1.41 million, versus 1.36 million housing starts. That's a gap of roughly 50,000 units that added to the long-running shortfall.
The minimum recommended income to buy a median‑priced starter home was about $86,000, with a typical down payment of $30,400, or 14.4% of the purchase price.
Realtor.com estimated it would take a median‑income household seven years to save that down payment, an assumption that depended on steady savings behavior and income growth and therefore should be treated as a projection rather than a guarantee.
Those barriers aligned with a 2025 Bankrate survey which showed that 16% of Americans who tried to buy in the previous five years had given up, while millennials were the most likely to walk away.
National Association of Realtors (NAR)’s latest profile found first‑time buyers down to 21% of the market and the median first‑time buyer age at 40 – both record highs, reinforcing the idea of a “missing” generation of owners.
“While construction levels remain elevated compared with historical norms, they are not yet high enough, or targeted enough, to meaningfully close the gap,” said Hannah Jones, senior economic research analyst at Realtor.com.
“The fact that it would take roughly seven years to eliminate the deficit even under an optimistic building scenario highlights just how significant and persistent this shortage has become.”
Regional imbalances and a rental release valve
Regionally, the South carried the largest cumulative deficit at about 1.62 million homes, followed by the Northeast at 952,000, the Midwest at 865,000 and the West at 660,000.
Measured against total construction since 2012, however, the Northeast faced the most acute gap, even after modest improvement in 2025 starts.
Because the report’s headship measure captured both renters and owners, it argued that more affordable rental stock also has to be part of the fix.
Renting remained cheaper than buying a starter home in 49 of the 50 largest metros, underlining the role of rental housing as a stepping stone for younger households rather than a detour from ownership.
Policy push meets structural headwinds
Roughly 1.5 million homes were completed in 2025, but single‑family starts slipped to about 940,000 – the lowest since 2019 – as builders navigated zoning limits, permitting delays, labor shortages and elevated material costs.
Without a step‑change in supply, demand‑side fixes alone would not solve the affordability crisis.
“We need some help on the supply side,” Kyle Concannon, VP of product and wholesale at Constructive Capital told Mortgage Professional America.
“Like a 50-year mortgage, I’m not thrilled about that. Another thing announced recently: buying mortgage bonds and mortgage securities. That's all the demand side. There's already plenty of demand. People want to own a home, or they want to own a rental. They want the American dream.”
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