The Mortgage Bankers Association has published a new white paper tracing how demographic shifts since the financial crisis have impacted the housing market while assessing their implications for future market growth.
“Implications of a Persistent Slowing in Housing Demand” analyzes changes in household formation, housing construction, affordability, and population growth, and explores how slowing demographic growth may affect housing supply-demand balances, home prices, and mortgage market activity over the coming decade.
The report recalls how strong millennial household formation following the Great Recession contributed to housing demand that outpaced construction, resulting in rising home prices and rents and estimates of a national housing shortfall ranging from 1.5 million to 7.3 million units.
The report then traces ongoing demographic trends – including population aging, lower fertility rates, smaller younger adult cohorts, and reduced immigration – while forecasting a future where residential construction will create a supply that could outpace demand. Also considered is how slower housing demand growth could affect mortgage origination volumes, borrower equity accumulation, and credit performance.
The report is authored by Mike Fratantoni, MBA senior vice President and chief economist; Joel Kan, MBA vice president and deputy chief economist; Judie Ricks, MBA associate vice president of commercial real estate research; and Edward Seiler, executive director of the Research Institute for Housing America and MBA associate vice president of housing economics.
“estimates of a national housing shortfall ranging from 1.5 million to 7.3 million units.” This is a complete fallacy.
The problem with these economists is that they only look at current available homes for sale when making proclamations about their being a housing shortage.
If there were an absolute housing shortage, then why have US median housing prices fallen over 8% since October 2022? (https://fred.stlouisfed.org/series/MSPUS)
The answer: The US actually has an OVERSUPPLY problem and a FALLING DEMAND problem.
The US doesn’t have a housing deficit problem, it has a housing-use inefficiency problem, a mal-investment problem, and a vacancy problem that has been exacerbated by the rise of 2nd homeowners, the rise of Airbnb vacation homeowners, and the rise of over-building of new, inefficient McMansions that have an overabundance of inefficient square-footage.
Hidden Supply:
There are 15 million vacant homes in the US. (https://www.realtor.com/news/trends/states-with-most-vacant-homes/)
So, despite popular opinion, there isn’t a 1.3 – 7-million-unit inventory-deficit-problem in housing, there is a major, 15-million-unit, housing-use-inefficiency problem (and a housing malinvestment problem). Which means that there is at least an 11 million housing-unit SURPLUS in the US.
Falling Demand:
And demand isn’t trending higher, it’s trending lower. Per 4/15/26 housing wire report, the level of first-time buyers has dropped to its lowest level since NAR started collecting data in 1981.
(https://wrenews.com/percentage-of-first-time-homebuyers-falls-to-all-time-low/?utm_source=ActiveCampaign&utm_medium=email&utm_content=Percentage%20of%20First-Time%20Homebuyers%20Falls%20to%20All-Time%20Low&utm_campaign=WRE%20Afternoon%20News%2004%2015%202026%20Nationwide%20%28Segmented%29%20%28Copy%29&vgo_ee=%2Fl6sZRnGrE9CZ0Hr2VbjAvfc0RwdLVHlX1lUkGCbCY%2B0%3AbHJfC8Ubx1WZJVjzR%2FK6xLeYkSQ6vNns)
The credit expansion cycle is over. The new, long-term credit contraction cycle has begun. Anybody who fails to understand this and continues to hold, buy, or build will now begin to realize they are invested in a depreciating asset.
The fact is, “building new housing” is not going to happen because builders aren’t going to be willing to try to solve the affordability problem once they begin to realize that, during this rising mortgage rate environment, they are going to broke trying to build into an existing over-supply / under-utilization problem.
Meaning that falling real estate prices is the ONLY long-term solution to the current housing crisis, Period.
Rising & elevated mortgage rates & falling demand problem meets over supply & underutilization problem = falling home prices & falling rent prices.
Builders aren’t dumb. If there were a real supply shortage, they would be applying for new building permits. Look at the charts (https://fred.stlouisfed.org/series/PERMIT)
New construction permits have been falling off a cliff since Q1 2022, just like median home prices have been falling since 2022.
All we have now is a bunch of pre-2022 speculative builders/developers sitting on a bunch of over-priced vacant homes that aren’t selling; and they are hemorrhaging money trying to service their high-interest rate construction loans.
This is a replay of 2007; learn from history kids.
Hey Carson ~ Thank you! Everything you said makes perfect sense. There are tons of empty homes. Glad to finally hear someone say it. I don’t see why there aren’t systems in place to address them. And I’m not talking about someone’s second home – I’m talking about homes, condos and apartments that have been empty for years. People should either use them, rent them, or states should create laws and taxes that address the empty units. Even Beverly Hills would be more affordable if all empty houses were sold or rented. In the most simple terms, in cities like LA, keeping tons of homes empty artificially keeps prices up for sellers. It keeps rental prices up, too. Less inventory and less competition always means higher prices. Common sense tells me this is not sustainable. I shudder every time I hear someone admonish, “Back in 1974, I paid fourteen percent interest,” like people today are spoiled. They never mention the house they bought in 1974 was 150K. As if interest rates weren’t prohibitive enough given today’s prices, first time home buyers are genuinely afraid to buy because they don’t trust the housing market. IMO, that’s the real problem, a lack of trust is deadly to any business, and the housing market is no different. Regular people aren’t millionaires, but to live and work in LA, an SFR costs almost a million dollars. If someone, besides Elon Musk, is about to spend a million dollars, they really need to trust that the value of what they buy is not going to drop. Feeling those 2007 vibes…
Thank you for your well thought out comment.
We don’t need any more new construction. What we need is regulation on the insurance that is driving the prices up and lowering property taxes.
As a real estate agent, I never have any issues finding available homes for my tenants or buyers prospects.
The challenge is when I’m listing properties for rent or for sale. They just sit on the market and sadly I have had several listing expire. Move in ready homes in perfect condition with competitive pricing, strong marketing campaigns and buyer’s incentives are being advertised but very few people are buying or leasing these days. Building more homes will only hurt sellers and landlords who are desperately competing for the few prospects out there! The focus should be on affordable home insurance and lowering property taxes.