Housing market prices are determined by several factors, primarily mortgage rates, consumer demand, and inventory supply. While interconnected, mortgage rates typically dictate supply and demand, influencing willingness to buy or sell.
For housing affordability to change, mortgage rates must fall to encourage buyer interest and seller willingness. However, increasing the number of homes available is another way to shift the market dynamics and make housing more affordable.
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We spoke with Danielle Hale, Chief Economist at Realtor.com, to discuss current housing market trends, affordability, and what to expect in 2025.
She notes that increasing the number of homes being built is key to turning the tide in the housing market, which will increase the supply and drive down competition. Making housing more affordable is crucial to improving financial well-being, as many Americans spend more than 30% of their income on housing.
Building more homes is key to affordability
Expensive housing is not only burdensome for consumers — it also has negative implications for the economy. Attracting talent to high-cost cities has become more challenging for employers, as workers no longer experience the urban wage premium due to soaring housing costs and wage stagnation.
Hale notes that the only way to address the housing crisis and lack of affordability is to increase inventory with new-build housing.
“In order to improve housing affordability, we need to add more housing capacity,” she said. “We need to see more for-sale and more for-rent homes built — both single and multi-family homes.”
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“Builders have been making progress. They've been building at the upper end of their historical ranges," Hale said. "But we had a really big hole to dig out of.”
Hale highlights that the housing build deficit — caused by COVID-19 impeding the construction industry and other economic conditions — will take years to correct.
“Estimates from Realtor.com suggest that we were lacking somewhere between 2 and 7 million homes over the last decade,” she explained. “We build about 1 to 1.5 million homes each year, so we've got a multi-year problem to build out of. It's just going to take some time.”
“Fortunately, everyone seems to be aware of the problem and agree on its existence,” Hale continued. “It's just a question of how we take steps to encourage builders to build more and make it easier for them to build more effectively to solve this problem.”
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Trump and Harris's housing affordability proposals
The economy and the housing affordability crisis have been hot topics during the 2024 election season.
Harris announced her goal to build 3 million new housing units through tax credits to encourage construction, a pillar in her economic plan. Trump has proposed cutting construction regulations to increase supply.
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Hale notes that local zoning policy will likely be the most significant source of relief for builders.
“There are ways that policy — not necessarily federal policy, but local land policy — can either help or hinder builders' ability to meet this demand,” Hale said. “Zoning has been a hot topic lately, and increasing the available or permissible density in different areas can help.”
Multi-family housing is one potential solution for creating affordable, more efficient, and environmentally sound housing.
“If you were to replace a single-family home with townhomes or a duplex, that does create more housing in the same space without creating more land or sprawl out into further areas, suburbs, and exurbs,” Hale explained. “Localities thinking about this and making changes to permit higher density zoning will see the benefits.”
“They will not come immediately or overnight, but we will see the benefits over time. And we have seen a lot of changes at the state level,” she said. “California has been an innovator at the city or metro levels. Saint Paul and Minneapolis have also been leaders in densifying the existing land use. And so I think we'll likely see those policies pay dividends over time.”
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