The American housing market provides an interesting snapshot of the current state of the U.S. economy. It is essentially split into two extremes: People who have equity from other properties and/or can pay cash for houses are at an all-time high; People with no equity and no cash (usually first-time home buyers) are at an all-time low. 

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The average age of first-time homebuyers is now a record 40. In the 1980s, the average age hit somewhere in a person’s late 20s. The share of homebuyers with children under 18 has dropped to a historic low of just 24 percent, compared to 58 percent in 1985. First-time home buyers now make up just 21 percent of the market, the lowest percentage since the National Association of Realtors started tracking such things in 1981. That’s down from 40 percent before the 2007-2008 Financial Crises.

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Without question, today’s housing market is the most difficult in four decades. Home prices have risen more than 50 percent since February 2020 (the median home price in the United States is now $413,500). The average home is now worth over 4.6 times the median family income, as opposed to 3.8 in 1995. Down payments are on the rise for all buyers, reaching levels not seen in decades.

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The average monthly price tag for homeowners with a mortgage increased to $2,035 in 2024 from $1,960 in 2023. Roughly a third of U.S. households now spend over 30 percent of their income on housing. This is creating a self-fulfilling prophesy: Around 15 percent of home-purchase agreements were canceled in September 2025 – up over 13 percent from the year before – because buyers got cold feet and/or realized the costs were going to be higher than they expected.

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Simply put, thanks to expensive home prices and new affordability challenges, including things like student loans, buying a home is beyond the reach of most American families. To make matters worse, insurance and property taxes together now cost more than many mortgages. Utility costs and homeowners’ association fees are also on the rise.

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Some people think that lower mortgage rates would magically solve the problem but that doesn’t appear to be the case. Mortgage rates fell in 2025 and are at their lowest point in years, but most people still can’t buy a home. In fact, the share of Federal Housing Administration (FHA) loans in the market – loans that were designed to make buying a home more accessible – has fallen from a record high of 55 percent in 2009 to 28 percent in 2025.

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Much of the problem comes down to supply and demand. In 1972, when the U.S. population was just over 200 million, almost 2.4 million new housing units were built and 575,000 mobile homes were shipped, bringing the total number of housing units to over 2.9 million units for the year. In 2024, fifty-two years later, just over 1.6 million housing units were added – 1.01 million single-family homes and 608,000 multifamily units – for a population of over 335 million.

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Insufficient construction isn’t the only thing constricting the housing market. Many homeowners, for example, have mortgages with interest rates below 4 percent (the average rate on a 30-year fixed mortgage dropped as low as 2.65 percent in January 2021, then started creeping up again in early 2022).

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So, they don’t really want to sell their home just to turn around and sign a much more expensive mortgage… to the point where many people whose homes don’t sell quickly are taking them off the market instead of lowering the price. Delistings of homes increased 72 percent in August 2025 compared with the year before.

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Because this is a supply and demand problem, the answer seems simple: We just need more housing units, right? That’s true – but there are many challenges, side effects, and unintended consequences that come with that answer.

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Basically, we need anywhere from 1.5 million to 5.5 million more housing units depending on who you ask (Moody’s Analytics says 2 million; the Brookings Institution says 4.9 million), but even if it’s on the lower side, we need to pick up the pace.

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This is way more challenging now, thanks to the Trump/Vance administration’s outrageous tariffs. For example, there are now 35 percent tariffs on Canadian lumber. This is a huge problem because, even though the United States produces lumber, we cannot meet our domestic demand without imports – and Canada is our largest foreign supplier of softwood lumber. In fact, Canadian lumber accounts for almost 30 percent of the lumber used to build American homes.

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Not to mention the Trump/Vance administration’s sky-high tariffs on steel, aluminum and copper (in August 2025, the administration announced that 50 percent tariffs were now in effect on over 400 kinds of products that contain aluminum or steel).

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The administration’s immigration policies are also a major problem for the housing market. Regardless of your stance on immigrants, they represent a third of construction tradesmen in the United States. Over 60 percent of drywall/ceiling installers are immigrants and over 50 percent of roofers and painters are. Sixty-four percent (64%) of U.S. homebuilders say they now face a shortage of labor. You don’t have to be an economist to recognize that fewer available workers mean higher wages. So now, not only are less homes being built, but they will cost even more when they are.

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Setting aside these larger policy issues, we must implement a strategy that closes the housing gap. Since there is not a silver-bullet solution for this challenge, our strategy must do many things at once: encourage new construction; streamline local zoning and permitting; increase access to mortgages, including those for “small-home” loans; help unlock existing housing inventory; and modernize construction techniques to build more homes faster and more affordably.

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Let’s take the last one first. On this, there are definitely ways we can start making headway. From May 1969 to the mid-1970s, the Department of Housing and Urban Development (HUD) implemented a plan called Operation Breakthrough, a 3-phase demonstration that tested innovative building materials and methods. The program was designed “to identify and demonstrate solutions to obstacles preventing large-scale housing production in the nation, with the goal of volume production of quality housing for all income groups.” The demonstration “sought housing system improvements, while at the same time, improved environmental quality and low-cost maintenance.”

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At the time, George Romney, who was Secretary of HUD in the Nixon administration, reiterated that Operation Breakthrough was “not a program designed to see just how cheaply we can build a house, but was a way to break through to total new systems of housing production, financing, marketing, management, and land use.”

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We should launch a modern-day Operation Breakthrough to harness the ingenious, creativity, and resourcefulness of Americans.

In Phase One of the original program, for example, 22 “Housing System Producers” were chosen from over 200 competitors to visualize designs, create engineering blueprints, and develop and execute the construction of prototype housing units. The winners utilized housing models ranging from precast concrete- or wood-framed modules to units constructed from plastic or metal. Just imagine what those prototypes would look like today!

 

Regardless of the paths we take, we need to anticipate and minimize the unintended consequences that can come with them. For example, one of the most helpful things we can do to make home ownership more accessible to Americans is to make it easier for them to purchase “small-dollar” homes – or homes that cost less than $150,000 – that already exist. However, from 2004 to 2021, the number of people receiving small-dollar mortgages fell by almost 70 percent. To put this spiral in perspective, in 1940, 70 percent of new homes were 1,400 square feet or less. In 2022, that number was just 8 percent.

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One of the main reasons for this is that, after the 2007-2009 Financial Crisis – which was sparked by the original sin of people receiving home loans they couldn’t afford – provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the legislation that was passed to prevent these kind of crises in the future) made it far less profitable for most banks to work with smaller loans. While, on one hand, this is understandable given what the country had just been through, these rules disproportionally hurt community banks, the very ones that usually serve lower-income buyers.

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To make this even more tricky, often these lower-cost homes do not qualify for loans even when they are available because the homes are often old and in poor condition. This is a double whammy because, not only can first-time homeowners not buy them, but entire neighborhoods begin to deteriorate and eventually become stagnant. When it gets to this point, the only people who can afford to risk turning these neighborhoods around are corporate investors, whose plans for development further shut out Middle Class Americans. Analysis by the think tank Urban Institute found that, from 2018 to 2021, corporate investors bought almost 30 percent of homes under $100,000, compared with just 7 percent of homes that cost over $100,000.

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Another example of a plan that has the potential for huge negative consequences is one like Kamala Harris, the 2024 Democratic nominee for president, proposed in the 2024 election. A key part of the plan was to provide first-time home buyers with $25,000 in down-payment support, at a total cost to the nation of $100 billion over four years. This perk would have been available to over four million households.

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On the surface, this sounds like a nice thing to do for people. However, it would most certainly lead to higher home prices in the end because one of the most basic laws of supply and demand is that an increase in demand without a corresponding increase in supply will result in higher prices. Although her proposal did call for the construction of three million new housing units – both for rent and sale – over the next four years, the plan she released didn’t contain many specifics on exactly how that would happen.