How Long-Term Shortages and Pandemic Shifts Reshaped U.S. Housing
Introduction
Over the past five years, the U.S. housing market has undergone a rapid shift driven by several converging forces. The rise of remote work reshaped demand, enabling many Americans to move away from major cities and compete for homes in suburban and regional markets with limited inventory. These demand pressures collided with long-standing supply constraints, including restrictive zoning laws and decades of underbuilding, the result being a significant demand and supply imbalance which have pushed prices higher.
Early-pandemic mortgage rates, which fell to historic lows, further fueled competition, while inflation and rising construction costs made adding new housing even more difficult and expensive. Together, these factors created a market defined by persistent shortages, elevated prices, and intense competition conditions that continue to shape the housing landscape today.
Source: Pexels
Historical Background
In the early 2000s, the United States experienced a sharp rise in home prices. The home prices were rising at a faster rate than household incomes. The homes were selling for higher prices than they could even be assessed at based on the value of the property itself. This inflationary surge was fueled in large part by lenient lending practices: banks and mortgage originators extended credit to borrowers who would not have qualified under traditional standards. The banks offered short 3-year-arm adjustable mortgages at record low interest rates, allowing people to join the homeownership market that previously could not. When the adjustable rate mortgages began to reset to substantially higher rates between 2007 and 2009, these fragile loan structures unraveled, resulting in a wave of defaults and ultimately bursting the housing bubble, triggering The Great Recession.
In the aftermath of The Great Recession, homebuilding fell to its lowest level since the 1950s, as lenders imposed far stricter qualification requirements, and millions of foreclosures depressed property values across many regions. The result was a rebuilding period lasting an entire decade that left the nation with a significant housing deficit.
The legacy of this era remains embedded in today’s housing market conditions. While new construction has picked up, it’s not enough to close the gap. The slow and uneven recovery created a persistent imbalance between supply and demand: far more families sought homes than the market could provide. As a consequence, prices continued to rise and never returned to pre-crisis affordability levels. When the pandemic arrived, the U.S. was already entering its second decade of underbuilding.
The Pandemic Era Shifts
For many home buyers, the pandemic created economic and lifestyle changes that prompted them to make moves sooner than they might otherwise have. Millions of Americans found themselves working at home and therefore wanting their home to be a place that could support both their work and their family lifestyle, leading to many leaving high-density city life for the suburbs.
Mortgage rates also reached unprecedented lows: the 30-year fixed rate fell below 3 percent for the first time and ultimately hit a record low of 2.65 percent. While these rates stimulated buyer demand, they simultaneously produced a “lock-in effect,” as existing homeowners were also able to refinance at these low rates, making them reluctant to sell their exceptionally low mortgages. This reluctance further tightened already limited inventory, placing additional upward pressure on home prices.
Demand for suburban houses increased at an unusual speed due to the pandemic and work from home lifestyle forced upon people. At the same time, the cost of home construction and remodeling rose sharply as global supply chain disruptions and escalating material prices, both caused by the pandemic, constrained builders’ ability to keep pace.
The resulting combination of heightened demand, severely constrained supply, and exceptionally low borrowing costs fueled rapid price appreciation nationwide, impacting for-sale housing affordability, and many households seeking more space reportedly found that the suburbs (and exurbs) were where they could afford that new or resale house. Ultimately, the pandemic did not simply influence housing preferences; it catalyzed a structural shift toward suburban living, reshaping the trajectory of the U.S. housing market. The impact the pandemic had on the housing market has left long term changes in today's market.
Key Factors Shaping Today’s Market
Since the housing bubble of the early 2000s, the persistent underbuilding of new homes has fundamentally shaped today’s market. While mortgage rates have eased into the low 6% range, the lowest in about a year, [but] affordability is still a major hurdle. As of early 2025, prices are up 60% nationwide since 2019, and are still rising at a rate of 3.9% year-over-year. Many homeowners remain reluctant to sell, even those that are ready to downsize cannot buy something for less than what they bought their current home. At the same time, “prices for residential construction building materials as a whole have accelerated since the beginning of 2024, leaving home builders to continue to deal with higher costs.” Inflation, global trade pressures, and sustainability requirements have all contributed to these rising expenses, further constraining new supply. Researchers now emphasize that the heart of the housing market’s resilience isn’t surging demand—it’s a shortage of supply, a dynamic that continues to push prices upward and intensify competition for the limited homes available. The combination of structural shortages, elevated construction costs, and demographic pressure has driven competition even higher—fueling yet another round of price increases.
Impacts on Different Groups
With home prices at historic highs, many households have increasingly turned to renting as a more attainable alternative. Today, the cost of owning a home is roughly 40% higher than the cost of renting one in the U.S. As purchasing becomes out of reach for a growing share of consumers, renter demand has surged. However, this shift has not guaranteed affordability: elevated demand has pushed rental prices upward as well.
The market has also seen rising interest in multifamily housing, though this sector faces its own financial pressures. As one analysis notes, material, labor, insurance and maintenance costs usually increase with inflation, adding to already rising multifamily expenses. Higher materials and construction expenses may also increase existing apartments’ replacement cost value. These rising operational and development costs contribute to higher rents, further straining affordability across age groups.
This challenge extends beyond younger families and millennials. Older homeowners, too, often find themselves unable to downsize, as many are effectively “locked-in” to their homes due to the low mortgage rates secured earlier in the decade. For many, moving to a smaller home would provide no financial benefit, limiting mobility and contributing to broader market rigidity.
Source: JPMorgan
Regional Differences
The U.S. housing market differs sharply across the different regions of the country; factors including local economic conditions, migration patterns, and regulatory environments all play a role. Recent data highlight the stark differences: House prices rose in 44 states and the District of Columbia between the third quarter of 2024 and the third quarter of 2025… The five states with the highest annual appreciation were 1) Illinois, 6.9 percent; 2) New York, 6.8 percent; 3) North Dakota, 6.3 percent; 4) New Jersey, 5.9 percent; and 5) Connecticut, 5.8 percent… Florida experienced the most significant price decline at 2.3 percent.
People have flocked to warmer climates with more space to build and lower costs of living in places such as Texas and Arizona; in Arizona, the population grew 5.4% from 2020 to 2024, fueling rapid demand. The coastal markets have seen the opposite—especially in California and the Northeast where prices remain unaffordable for first time buyers. In California, restrictive zoning effectively makes it illegal to build more than a certain amount of housing in a particular neighborhood, city, or metropolitan area, limiting new supply even as job centers continue to draw residents.
The housing market varies dramatically depending on what part of the country we are examining: land availability, in-migration, and regulatory constraints combine to create distinct regional housing pressures.
Conclusion
We are left wondering about the future of the housing market, will prices continue to rise or will the baby boomers be forced to move on to assisted living due to aging and health issues, opening up a frozen market of suburban houses? When compared with pre-pandemic norms, home sales are expected to remain muted as long as mortgage rates remain well over 6%. Will the government be forced to find a solution with mortgage rates? In our post-pandemic era, work from home continues for many Americans and therefore the demand is there for housing, especially for suburban homes. Ultimately if mortgage rates drop, we will see movement in the housing market even if prices are high because it will be a strong investment, where the homeowners feel their money is not going to waste.