A persistent U.S. housing supply shortage worsened from 2024 to 2025 as household formation surpassed new construction and existing purchase demand bottlenecks tightened, according to a newly released Realtor.com analysis of U.S. Census Bureau data.
The Northeast was the only region to improve its inventory levels last year as the U.S. housing supply gap widened to 4.03 million homes from 3.8 million in 2024.
“A supply gap exceeding 4 million homes underscores how deeply rooted the shortage has become,” said Danielle Hale, chief economist at Realtor.com, in analysis accompanying the listings platform’s 2026 Housing Supply Gap Report.
In 2025, the minimum recommended income to purchase a median-priced starter home was approximately $86,000. That is roughly $8,000 lower than the prior year due to lower mortgage rates, but above the earnings of many younger households, according to the analysis.
At a median sum of $30,400 in 2025, or 14.4% share of the purchase price, it would take a median-income household seven years to save for a typical downpayment at today’s savings rates, underscoring how access to cash largely determines who can purchase in the current market.
The supply shortage is also described as having a disproportionate impact on younger households, with Realtor.com indicating there were 1.82 million fewer households among 18- to 44-year-olds than would be expected if “headship rates,” or the share of individuals in an age group who head their household, matched the 2010 to 2014 average.
“If housing were more abundant and affordable, some of these individuals would likely form households, increasing annual household formation and reducing the pent-up demand currently embedded in the market,” the analysis noted.
After the home building industry lost millions of jobs and suffered massive write-downs following the 2008 financial crisis, a home building underconstruction trend has persisted for 15 years. Surging homebuyer demand during the COVID-19 pandemic confronted an existing supply shortage, fueling rampant home price appreciation.
The subsequent inventory recovery has been lopsided, with pandemic-era home building yielding notable gains in Texas, Florida and a smattering of regional metros across the South and West regions, but with many fewer new homes being built in the Midwest and Northeast.
According to Realtor.com, the cumulative supply gap is widest in the South at approximately 1.62 million homes, compared to gaps of 952,000 in the Northeast, 865,000 in the Midwest and 660,000 in the West. Those gaps reflect housing supply relative to annual regional household formations, which consistently outpace new-home construction.
But a separate measure of the regional deficit that shows the ratio of overall supply gaps relative to new construction since 2012 tells a different story.
The Northeast faces the most acute imbalance relative to post-financial crisis construction history, at 0.58, followed by the Midwest at 0.35, the South at 0.18 and the West at 0.16. The report indicates housing starts fell in the South when household formations accelerated in 2025 as the broader region “continues to normalize after rapid pandemic-era expansion, with some markets shifting toward more balanced or even buyer-friendly conditions.”
U.S. home builders watched the single-family construction market contract in 2025 compared to 2024 activity, hampered by high costs, tariff uncertainties and affordability challenges eroding homebuyer demand. Builders relied heavily on sales incentives to close deals last year, eroding margins.
The chief economist at the National Association of Home Builders, Robert Dietz, recently told Scotsman Guide that spurring single-family construction in 2026 will hinge on homebuyer affordability and whether it remains challenging for builders to actually sell the new homes closing the supply gap.
Added Hale in Realtor.com’s analysis: “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.”
