Will demographic shifts change the housing supply equation? 

For more than a decade, Americans have faced a housing shortage. It traces back to the pullback in new construction after the financial crisis, which coincided with millennial household formation. Historically low pandemic-era mortgage rates then deepened the deficit by driving a surge in demand.

In recent years, builders responded to the inventory problem by ramping up construction — particularly in the South and West — but by the time that new inventory became available, mortgage rates had increased, dampening demand. 

That shift, along with demographic changes and other factors, may be priming the market for a turn that was once unimaginable: an oversupply of homes, according to a paper from the Mortgage Bankers Association (MBA).

If the U.S. continues on this trajectory, the MBA warns, homeowners could be negatively impacted. But others say current projections are not set in stone.

A slowing rate of population growth

Despite improvements in wage growth — which could fuel housing demand — population shifts, driven by changes in immigration policy and household formation, may leave the U.S. with fewer homebuyers relative to the amount of available inventory, the MBA suggested. 

The Congressional Budget Office (CBO), the report noted, recently reduced its 2035 population estimates. Last year, the CBO projected a U.S. population of roughly 364 million in 10 years. Now, it puts that figure at just over 357 million. Meanwhile, increased border enforcement and deportations in the coming years are expected to significantly decrease net immigration to the U.S., according to the CBO. 

The country's fertility rate has also been steadily declining. By 2030, the CBO estimates that U.S. deaths will exceed births.

Supply could exceed demand in less than 10 years

Based on available data, the MBA forecasts an average annual increase in population of 1.1 million from 2035 to 2045 and expects demand for housing units to be lower than previously estimated.

The U.S. will need an average of about 1.13 million housing units each year from 2025 to 2035 (or roughly 11.3 million total), and about 802,000 units per year from 2035 to 2045 (or just over 8 million), the report projects.

At the same time, the MBA predicts housing supply will total between 10.6 million and 14.6 million units over the next decade. This estimate accounts for changes to housing stock — including the loss of a small amount of existing housing each decade and the transfer of units to new households as baby boomers continue to age — and assumes that not all new units will be owner-occupied or occupied full time, due to second-home usage and natural vacancy rates. 

If these projections are correct, the estimated growth in supply will likely exceed growth in demand by 2035, and that scenario would be expected to continue through 2045 — findings similar to those in a report from Harvard University's Joint Center for Housing Studies (JCHS) released last year. 

Implications for homeowners

Should current trends continue, existing homeowners — and the mortgage industry — could feel the fallout, the MBA noted. 

In addition to fewer origination loans being issued, national single-family and multifamily home prices will likely decline, which would cause homeowners' equity to take a hit. That could lead to a future loss in their next home sale as well.

Moreover, there's a risk that recent borrowers or those with lower down payments could become underwater on their mortgages or even default if they experience an income shock, the MBA report noted, "which suggests additional consequences for mortgage servicers due to the potential for advances, loss mitigation costs, and extended resolution timelines."

Supply surged in the wrong places

Inventory has grown fastest in areas where land is readily available, the permitting process is easier and overall costs are lower. But those are rarely the places most in need of new housing.

The MBA said it anticipates price growth to slow or decline in states like Arizona, Texas and Florida, where single-family construction has boomed in recent years. Meanwhile, price growth will remain strong in New York, New Jersey and Massachusetts — states where restrictive zoning and higher labor and permitting costs curb new construction.

"Builders will have to overcome the cost and regulatory burdens of building in these markets to get anywhere near a scenario where supply exceeds demand," Realtor.com Senior Economist Joel Berner said in a published response to the MBA's report.

"This scarcity will keep prices rising in parts of the country that are not adequately supplied," Berner added.

The task for policymakers will be finding ways to encourage builders to create more affordable housing in the areas that need it the most rather than where it is easiest to build.

That will likely mean "looking beyond today's market conditions to understand the long-term forces shaping housing demand," Mike Fratantoni, MBA SVP and chief economist, said in a press release. "These findings can help industry participants and policymakers better prepare for future changes in housing and mortgage market dynamics."

Still time for a turnaround

While the MBA's report paints a compelling picture of a shifting market, Berner argues that a near-future housing oversupply is far from inevitable, noting that the projections don't account for builders adjusting to lower demand for housing.

There are already signs that they may be pulling back: Total housing starts declined 15.4% from April to May, with single-family starts alone falling by 1.9% month-over-month. 

And although the MBA expects household formation to continue slowing, other factors could change that projection, Berner argued.

"Part of how we quantify the supply gap nationally is to count households that would have formed if affordability conditions were better," Berner said. "This piece just takes falling household formation as a given, while we see it as a variable result of conditions in the marketplace."

A separate Realtor.com report found that a record share of adults under 35 still lived with their parents in 2025, but many could simply be delaying their own household formation — and if the affordability variable changes, may strike out on their own, Berner suggested, fueling housing demand.