U.S. housing outlook points to softer home prices as supply growth may outpace demand

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Highlights

Mortgage Bankers Association projects U.S. home prices will rise just 1% in 2024 and remain flat over the next two years.
Demographic shifts, including a fertility rate projected to fall to 1.56 and declining immigration, are expected to weaken long-term housing demand.
Between 2025 and 2035, housing supply is forecasted to increase by 10.6–14.6 million units while annual demand could drop to 802,000 units, pressuring home prices and mortgage origination volumes.

Demographic trends reshape housing supply outlook

As reported by the Mortgage Bankers Association in a white paper released Monday, the long-running view that the U.S. faces a persistent post-financial crisis housing shortage may no longer hold over the decade ahead. The group says home prices are likely to rise just 1% this year and remain roughly flat over the following two years, a pattern it sees as a possible precursor to price declines in the medium term.

The paper, led by MBA chief economist Michael Fratantoni, argues that supply growth could exceed demand growth if homebuilding remains elevated. The association says several demographic forces are weakening the base of housing demand, including a declining fertility rate, an aging population and lower immigration.

The Congressional Budget Office projects the fertility rate will fall to 1.56 births per woman over the next decade, from 1.6 last year. The MBA also says deaths are now expected to outnumber births each year by 2030, earlier than previously anticipated, while Gen Z is approaching prime first-time buyer age as a smaller cohort than both millennials and baby boomers.

Implications for buyers and the mortgage industry

The association says immigration trends are also reducing household formation, with net international migration falling to 1.3 million as of July last year from a peak of 2.7 million a year earlier, citing Census Bureau data. At the same time, baby boomers are expected to gradually add homes to the market as they age, though the MBA says it does not expect a sharp "silver tsunami" of listings.

One report cited by the association estimates the U.S. could gain an additional 250,000 housing units a year in the decade after 2025 because of aging boomers. Overall, the MBA expects housing supply to grow by between 10.6 million and 14.6 million units through 2035.

Demand, by comparison, is projected at 1.13 million units a year from 2025 through 2035 before dropping to 802,000 units a year. The MBA says that arithmetic could have broad consequences not only for home prices but also for the mortgage sector, as fewer home purchases would likely translate into lower loan origination volumes.

In our earlier article on Congress advancing the ROAD to Housing Act, we covered a bipartisan package aimed at boosting housing supply and improving affordability. The compromise would cap large private equity holdings in single-family homes at 350 units while easing some regulations for new construction, tying certain grants to local housing expansion, and funding pilots to redevelop vacant units.

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