As end-of-year housing analyses and forecasts for 2026 continue to emerge, economists are weighing in on buyer sentiment, home prices, mortgage rates, and monetary policy. One of the biggest questions facing consumers and real estate professionals, however, centers on housing supply — especially as the price gap between new and existing homes sits near historic lows.
John Burns, founder of John Burns Research and Consulting, addressed these issues during a recent webcast, arguing that the U.S. housing market is slowly moving toward better balance. According to Burns, this shift is being driven by a rise in resale listings, an increase in new home supply, and a housing shortage that may be far smaller than previously believed.
New construction has added significantly to the available inventory. As builders move projects through the pipeline, new homes are accounting for a growing share of total listings. Burns expects new home starts to remain relatively subdued through the remainder of 2025 and into 2026, even as completed inventory continues to build.
Unsold new home inventory has returned to levels last seen before the housing recession, with builders now holding an average of about 2.7 finished but unsold homes per community — well above the typical level of roughly two. To manage this excess supply, builders are increasingly turning to incentives such as price discounts and mortgage rate buydowns. At the same time, many are deliberately starting fewer homes than they sell in an effort to reduce the backlog. As Burns explained, the goal is for sales to outpace new construction.
This growing inventory challenges the long-standing narrative of a massive housing shortage. While earlier estimates suggested a deficit of 3 to 7 million homes, Burns now places the shortfall closer to 1.1 million units. That revised figure factors in overbuilding during the mid-2000s, the sharp construction pullback following the housing crash, and slower population growth in recent years.
Demographic changes are also reshaping housing needs. Slower household formation and an aging population mean demand is shifting toward smaller, more affordable homes for millennials and accessible, ground-level housing for older Americans. Burns emphasized that affordability is central to solving the housing problem, noting that if reasonably priced homes were available with manageable payments and rents, demand would quickly absorb them.
Despite these supply adjustments, the construction boom appears to be losing momentum. High mortgage rates continue to discourage existing homeowners from selling, while land prices remain stubbornly high, limiting builders’ willingness to launch new projects. Many renters are also choosing to stay put, further dampening market movement.
Ultimately, affordability remains the most significant obstacle. Elevated home prices and mortgage rates have priced many entry-level buyers out of the market, sharply reducing the number of households that can qualify for a mortgage. This suppressed demand removes the incentive for builders to increase new home starts.
According to Burns, improving affordability requires one of three things: strong income growth, falling home prices, or lower mortgage rates. However, he cautioned that meaningful income gains are unlikely in the near term, making affordability a challenge that could persist well into the future.
