For many Americans, homeownership is feeling increasingly out of reach.
“Home prices have been running hot since the pandemic and have increased at twice the rate of inflation over the past six years,” says Senior Lecturer of Economics Allison Kaminaga, Ph.D.
Crunching the numbers, Kaminaga explains that housing costs have increased by approximately 56 percent since 2020 while general inflation has increased by approximately 29 percent.
Overall price trends, however, cannot solely explain today’s high home prices.
Why is the housing supply so low?
“The low supply of homes on the market is one of the main drivers,” Kaminaga says.
Today, the National Association of Homebuilders estimates that there is a shortage of 1.2 million homes in the United States — putting upward pressure on prices. Additionally, high interest rates are hitting builders hard. Because these individuals are facing higher rates on construction loans, they may be more reluctant to start new projects, which further limits the housing supply or leads to higher home prices if builders pass costs onto homebuyers.
High interest rates are also exacerbating the current housing situation. In 2022 and 2023, the Fed started aggressively raising rates to quell inflation. Even over the past few weeks, rates on the 10-year Treasury – which is closely linked to mortgage rates – have increased significantly. For instance, the 30-year fixed mortgage rate hovers around 6.7 percent today, which is much higher than its average level over the past two decades; in 2016, rates averaged around 3.5 percent, according to U.S. News and World Report.
“Rising interest rates translate into higher monthly payments for buyers, reducing housing affordability,” Kaminaga says. “These higher monthly payments may price buyers out of the market entirely or have them consider lower-priced properties compared to what they would have considered in a lower interest rate environment.”
She explains that rising interest rates have also contributed to the low supply of homes because many homeowners took advantage of ultralow interest rates following the COVID-19 pandemic by buying or refinancing.
“These homeowners are now reluctant to sell because they can’t transfer their low rate to a new property,” says Kaminaga, adding that it seems unlikely that interest rates will decline this year given recent developments in inflation and the labor market.
Will housing affordability improve?
While there are some signs that housing affordability could improve, data suggests the improvement will likely be gradual due to the housing shortage. For example, new construction is providing some relief as 1.44 million building permits were issued this past July, which is up 3 percent from July 2025, according to the Census Bureau.
“Existing home inventory has also improved to 4.6 months of supply, but the median existing-home price is still $431,400, which remains unaffordable for many,” Kaminaga says.
While speculation about a potential housing market correction continues, Kaminaga explains that home price growth, inventory, sales, mortgage delinquencies, and household debt are the key variables that economists are closely monitoring.
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“The mortgage delinquency rate in quarter two of 2026 was 1.86 percent, which doesn’t show signs of widespread distress,” says Kaminaga, explaining that this percentage reached as high as 10 percent during the financial crisis. “A correction would likely mean slower or negative home price growth, during which we could see home prices fall and inventories rise.”
While affordability can gradually improve when interest rates come down or when the housing supply increases faster than demand, many buyers continue to face significant barriers to entry. For instance, the average age of first-time homebuyers has risen to a record high of 40 years old, according to the National Association of Realtors. That statistic is up from 32 years old, only a decade ago.
For those considering a purchase, Kaminaga recommends that individuals should compare their income and savings with the total monthly cost of ownership, including the mortgage, taxes, insurance, and maintenance. They may also want to consider how much cash they will need to cover down payments and closing costs.