H
igh prices and steep mortgage rates keep first‑time buyers out, even as new‑home inventory rises, says analyst John Burns. Total unsold new‑home stock has returned to pre‑Great Recession levels, and Burns forecasts that new‑home starts will stay subdued through 2025 and into 2026. He argues the supply gap is smaller than previously thought, estimating a net shortfall of roughly 1.1 million homes after accounting for mid‑2000s overbuilding, the post‑crash pullback and slower population growth.

    With builders holding more finished units than they can sell—about 2.7 unsold homes per community versus the typical two—developers are likely to keep discounting, offer mortgage‑rate buydowns, and reduce starts to clear the backlog. “The goal is to have sales outpace starts,” Burns says.

    The narrative of a severe housing shortage may be overstated. A growing pool of unsold new homes suggests the overall deficit is less severe. Instead of a 3‑7 million‑unit shortfall, the net gap sits near 1.1 million homes. Demographic shifts—slower household formation and an aging population—mean demand may lean toward smaller, affordable units for millennials and ground‑level homes for seniors.

    Affordability remains the primary barrier. Even if buyers desire new homes, many cannot qualify because prices and mortgage rates have risen sharply. This dampens demand and removes the incentive for builders to increase starts. The only viable solutions are higher incomes, lower home prices, or reduced mortgage rates. However, Burns cautions that significant wage growth is unlikely; “I don’t know many people getting 56 % raises this year.” Thus, the market may stay unaffordable for an extended period.

    Developers continue to push through the construction pipeline, so new homes now represent a larger share of the overall inventory. Yet builders face a mortgage‑rate lock‑in effect that dampens confidence. Land sellers remain reluctant to lower prices, and many renters are choosing to stay, further limiting the market’s dynamism. Burns also notes that the construction boom may be over; with the backlog of unsold units, builders are cautious, and the market’s capacity to absorb new starts is constrained.

    End‑of‑year forecasts for 2026 are emerging, covering buyer sentiment, price trends, mortgage rates, and monetary policy. As the price gap between existing and new homes approaches record lows, consumers and professionals should prepare for a market where inventory balances gradually, but affordability challenges persist.