‘Deeply rooted’ housing shortage worsened in 2025 

The U.S. housing supply gap worsened in 2025, according to a new report, ratcheting up affordability challenges even as mortgage rates remain relatively low.

The deficit grew to 4.03 million homes in 2025, Realtor.com estimates, up from 3.8 million in 2024. Last year's gap was the third-widest of the past 14 years, outranked only by a deficit of 4.4 million homes in 2020 and 4.3 million in 2023.

The March 3 report, which assesses household formations and construction starts, estimates that the share of young adults living with parents was, on average, 2.7 percentage points higher than during the 2010-2014 period.

A challenge years in the making: While annual construction and household formation were roughly balanced last year, "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," Hale said in a new release accompanying the report. "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."

Compared to historical standards, construction is elevated. But the industry is still playing catch-up.

Even if construction jumped 50% from the 2025 pace, Realtor.com economists estimate that it would take seven years to erase the deficit — and this "highlights just how significant and persistent this shortage has become," said Hannah Jones, a senior economic research analyst at Realtor.com.

A new threat to recent affordability gains? Mortgage rates have steadily declined over the past few months, with the weekly average 30-year rate dipping under 6% last week for the first time since September 2022.

But according to Mortgage News Daily, 30-year rates jumped to 6.12% on March 2 after the U.S. began bombing Iran. Amid concerns that oil prices may rise as a result of the conflict, inflation could increase again.

Inflation has been a focal point for recent Federal Reserve meetings on monetary policy. The central bank held off on cutting short-term interest rates during the first half of 2025 as inflation remained elevated — and the Fed has indicated that it will continue to closely monitor new inflation data. 

Conflicting housing gap data: Housing gap estimates vary widely based on the factors that are considered. Last month, the National Association of Home Builders estimated that around 1.2 million housing units were needed to restore vacancy rates to historical norms. 

Last May, the National Association of Realtors estimated that the housing market needed 367,000 home listings at a maximum price of $170,000, 416,000 listings priced at or under $255,000 and another 364,000 at or under $340,000. And research from Harvard's Joint Center for Housing Studies pegged the gap between homes needed and homes available at 3.78 million units in 2023.