Why housing’s ‘unaffordable situation’ is so persistent
High home prices and elevated mortgage rates are keeping first-time buyers locked out even amidst a rise in new home inventory, according to analyst John Burns.
Key points:
- Total unsold new home inventory has returned to pre-Great Recession levels, according to housing analyst John Burns, who predicts that new home starts will likely be soft going into 2026.
- Burns believes that the supply shortage is not as extreme as previously suggested. He pegs the net deficit at around 1.1 million homes.
- Even if buyers want new homes, far fewer can qualify due to the dramatic deterioration of affordability.
End-of-year analyses and predictions for 2026 are rolling in quickly, with economic experts offering insights into buyer sentiment, home prices, mortgage rates, monetary policy and more.
But what should consumers and real estate professionals expect on the inventory front — particularly as the price gap between existing and new homes hovers near record lows?
John Burns, housing analyst and founder of John Burns Research and Consulting, argued during a recent webcast that the housing market is drifting toward balance by way of more resale listings, more new home supply and a much smaller "shortage" than was previously speculated.
New home inventory is piling up
As developers push through the new construction pipeline, new homes continue to make up a larger share of the total inventory available. Burns predicted that new home starts will remain muted for the rest of 2025 and into 2026.
Total unsold new home inventory is back to pre-recession levels, Burns said, with builders now carrying about 2.7 finished (but unsold) homes per community — well above the norm of about two homes.
With builders carrying more completed inventory than they want, they'll likely continue discounting homes, offering mortgage rate buydowns and starting fewer homes than they sell to relieve the backlog.
"The goal here is to have sales outpace starts," Burns explained.
Is the housing shortage story overblown?
With a growing inventory of unsold new homes hitting the market, the total housing supply shortage may be less severe than some analysts and real estate professionals previously thought.
Rather than a 3-7 million unit deficit, as was speculated as recently as this spring, Burns pegged the net deficit at around 1.1 million homes after accounting for mid-2000s overbuilding, the deep post-crash pullback and today's slower population growth.
Softer household formation combined with the aging population means that the U.S. might need different types of new housing — particularly smaller, more affordable homes for millennials and accessible ground-level residences for the growing elderly population.
"The price matters. People are priced out. The homes need to be affordable. If we put 1.1 million homes on the market today, at normal prices and normal payments and normal rents, they'd all sell and lease up," Burns said.
Construction boom may be over
Other factors, such as the persisting mortgage rate lock-in effect, may tamper builder confidence. Land sellers remain stubborn and "are just unwilling to drop prices enough" to help spur construction, Burns said. Meanwhile, more renters are also staying put.
But affordability remains the biggest hurdle, as more entry-level buyers are locked out due to high home prices and elevated mortgage rates. Affordability has deteriorated so dramatically that, even if buyers want new homes, far fewer can qualify. That suppresses demand, Burns suggested, and removes the incentive for builders to ramp up starts.
The only way to fix affordability is through income growth, falling home prices or declining mortgage rates, Burns said. But buyers shouldn't count on income growth, Burns explained, "because I don't know many people getting 56% raises this year." It may take a long time for incomes to catch up with home prices.
"We may be in an unaffordable situation for quite some time," he said.