Why the Housing Market Matters to the U.S. Economy
The National Association of Home Builders (NAHB) shares that housing’s combined contribution to gross domestic product generally averages 15-18%, and occurs in two primary ways:
- Residential investment (averaging roughly 3-5% of GDP), which includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes, and brokers’ fees.
- Consumption spending on housing services (averaging roughly 12-13% of GDP), which includes gross rents and utilities paid by renters, as well as owners’ imputed rents and utility payments.
Additionally, the National Association of Realtors (NAR), states home purchases, particularly older ones, typically trigger additional consumer expenditures. These new homeowners often invest in home improvement projects, furniture, appliances, and services to personalize and update their living spaces, which helps support jobs and income across various industries. In 2023, NAR estimated the total economic impact of a single home sale at the median price was approximately $124,800, broken down as follows:
Source: National Association of Realtors
Challenge of Affordability in 2025
While price increases for homes in the U.S. can help the economy overall, they can also create challenges for individuals and families —especially if those increases happen too quickly. According to Zillow, across the U.S., home values are up 45.3% since February 2020, just before the pandemic. Historically, home values have grown roughly 4% annually, meaning the past five years have packed in over a decade of typical appreciation. Mortgage rates have also climbed significantly, from 2.99% in June 2021 to 6.82% in June 2025. Meanwhile, as shown in the chart below, income growth has lagged far behind home price increases, creating a growing gap between what homes cost and what households can afford.
Exhibit A: Home Prices, Housing Costs, & Wages
Source: S&P Dow Jones Indices, Bureau of Labor Statistics (BLS), Bloomberg, Fiduciary Trust Company. Data as of June 18, 2025.
Another phenomenon that is occurring is the so-called “lock-in effect”. Given the rapid change in mortgage rates since 2020, there has been a hesitance for homeowners to sell their homes due to low mortgage rates that were previously secured and “locked in” and not currently available to finance the purchase of a new home. This reluctance to sell can contribute to lower overall housing inventory and can impact market dynamics, including elevated prices. In January 2024, nearly half (47.9%) of homeowners with a mortgage backed by Fannie Mae or Freddie Mac had an interest rate of 3.5% or lower, according to research by the Urban Institute. At the same time, the average interest rate for a new 30-year fixed-rate mortgage was 6.6%–a 3.1% difference (Urban Institute). On a $300,000 loan, this would add $580 per month. Furthermore, the NAHB’s updated housing affordability graph for 2025, shows that 76.4 million households — 57% out of a total of 134.3 million — are unable to afford a $300,000 home.
Emerging 2025 Housing Market Trends: Insights from Reventure App
The sentiment expressed by the friends and family I spoke with over the 4th of July weekend is backed up by real data about the affordability crisis in the housing market that has been experienced over the past few years. After commiserating and discussing the existing problems, there seemed to be more questions than solutions or understanding of what comes next.
Nick Gerli, CEO of Reventure App, uses real-time analytics to track housing trends. In a recent post on X, Gerli outlined how affordability might return to the market. Gerli estimates the current average monthly mortgage payment is around $2,800, while $2,100/month could be the sweet spot to unlock affordability. The reasoning for the $2,100/month is based on the estimated U.S. median income for 2025 of around $84,000, using the last published Federal Reserve report and the 28% rule that no more than that percentage should go towards housing each month.
In a follow up post, Gerli shared trends of growing U.S. housing inventory across the nation, potentially leading to a housing slow down or correction. This concern for the potential of a housing market correction was also echoed by Thomas Ryan, North America economist at Capital economics, stating “After falling in March, the further 0.3% m/m decline in house prices in April raises the risk that prices are entering a sustained downturn, as the market finally buckles under the weight of near-7% mortgage rates.”
However, market performance varies greatly depending on the region. In his analysis, Gerli outlines a “tale of two housing markets”:
- The South and West are experiencing softening prices and even corrections.
- The Northeast and Midwest, by contrast, are seeing ongoing appreciation and tighter supply.
Final Thoughts: 2025 Housing Market Outlook
It’s very likely that the conversation about the housing market in Austin, Texas this past weekend would sound very different from the one in Rochester, New York. Austin has seen substantial price declines—perhaps the final fireworks of its recent housing boom. Meanwhile, Rochester continues to show year-over-year home price increases, according to Zillow. Given the drastic regional divergence in prices, it would seem that even if we see a slowdown or correction, we are still a long way from a material decline in home prices on a national basis.
While current affordability difficulties and slowing demand may be reminiscent of the 2008 housing crisis, the current underlying fundamentals and conditions are considerably more stable. The 2008 housing crash was fueled by speculation and risky lending practices which left large financial institutions highly levered and exposed. When prices eventually fell, the entire system began to unravel.
Today, there are much stricter mortgage standards and sound borrower profiles. This means that most homeowners have stronger equity positions than last witnessed during the 1950’s as measured by the Federal Reserve data. Banks are better capitalized, and many financial regulations have been implemented following the 2008 crisis serve to strengthen the entire system.
Structural supply constraints and pandemic-related shifts in demand have been the root cause of the recent housing market boom, according to research by the Federal Reserve and analysis from the Urban Institute. While in certain pockets of the country, there may be recent overbuilding that has not taken place on a national level to date. While some regions in the U.S. may experience additional downward pressure on home prices, current market fundamentals suggest that the overall housing market appears less exposed to the conditions that typically lead to a severe, nationwide correction.
As I first outlined, the housing market comprises a good portion of national GDP and is tied closely to the broader economy. A downturn in housing, while unlikely to trigger a crisis of its own, could amplify other economic stressors — like slowing job creation, higher inflation reports, or uncertainty with trade and tariff policy. At Howe & Rusling, we continually monitor the housing market data along with a host of economic reports including consumer spending, retail sales, consumer and small business sentiment. to inform our outlook and actively manage our investment strategies.
Frequently Asked Questions (FAQs) About the 2025 U.S. Housing Market
Q: Why are home prices still so high in 2025?
A: Detailed in the Challenge of Affordability section above, home prices remain elevated due to a combination of factors: limited housing inventory, high construction costs, and lasting demand from the pandemic-era reshuffling. According to Zillow, U.S. home values have risen over 45% since February 2020, far outpacing historical trends. In many regions, particularly in the Northeast and Midwest, prices are still rising due to limited supply.
Q: Are we heading toward another housing crash like 2008?
A: While no one can predict the housing market with certainty, current data does not reflect the same conditions that contributed to the 2008 housing downturn. Several key differences stand out:
- Homeowner equity is significantly higher. U.S. homeowners hold historically strong equity positions, similar to levels last seen in the 1950s, according to the Federal Reserve’s Financial Accounts report.
- Mortgage lending standards are stricter. Post-2008 regulatory reforms have tightened underwriting practices, reducing the prevalence of high-risk loans (Urban Institute).
- Banks are better capitalized. Financial institutions maintain stronger capital reserves, reducing systemic risk compared to pre-2008 conditions (Federal Reserve).
The 2008 crash was largely fueled by speculative buying, subprime lending, and poorly underwritten mortgage products, which are far less common in today’s market (Urban Institute).
Q: What is the “lock-in effect” and how is it impacting the market?
A: The lock-in effect refers to homeowners who are reluctant to sell because they secured historically low mortgage rates in previous years. Nearly 48% of borrowers with government-backed mortgages have interest rates at or below 3.5%, according to the Urban Institute. Purchasing a new home at today’s average rate of about 6.6% could result in significantly higher monthly payments, which may reduce homeowners’ incentive to sell and can contribute to tighter housing inventory.
Q: How have mortgage rates affected affordability in 2025?
A: Mortgage rates have more than doubled from 2.99% in June 2021 to 6.82% in June 2025 (Mortgage Reports). This rate increase significantly raises monthly payments. For example, on a $300,000 mortgage, the monthly cost has increased by around $580, making it harder for new buyers to qualify or afford the same homes.
Q: How many U.S. households can still afford a $300,000 home?
A: According to early 2025 data from the National Association of Home Builders (NAHB), approximately 43% of U.S. households have the income needed to afford a home priced at $300,000 under standard lending criteria. Conversely, about 57% of households—roughly 76.4 million out of 134.3 million—fall outside that affordability range. These figures reflect broad national averages; affordability can vary significantly by region, local wages, and cost of living.
Q: Is there still a housing shortage in 2025?
A: Inventory dynamics have shifted in recent months. While the national housing supply remains below pre-pandemic levels, several key indicators show signs of normalization:
- According to Realtor.com’s May 2025 report, total home listings are up year-over-year in all four U.S. regions, with the West seeing a +40.7% increase and the South +32.9% compared to last year.
- Despite these gains, overall listings are still below pre-COVID averages—though in the West (+10.8%) and South (+3.6%), inventory has already returned to or even exceeded 2017–2019 levels (Realtor.com).
- Realtor.com also notes significant metro-level recoveries. For example:
- Denver’s active listings are 100% above pre-pandemic levels (Fox Business)
- Austin’s are up ~69%( Realtor.com).
Taken together, these trends suggest that while the overall supply shortage is easing, the situation remains regionally mixed—with some areas experiencing true relief and others still under pressure.
Q: What’s happening regionally in the U.S. housing market?
A: Regional trends remain mixed:
- South & West: Inventory has rebounded sharply, with listings up 29% in the South and 38% in the West year-over-year (Realtor.com). Austin, for example, has 69% more active listings than pre-pandemic levels and a 6% median price drop (mysanantonio.com).
- Northeast & Midwest: Supply remains tighter—40–50% below pre-pandemic levels—helping to sustain moderate price growth. Rochester, NY, is projected to see a 2.2% price increase over the next year (Zillow via ResiClub Analytics).
Q: What are the broader economic implications of a housing downturn?
A: Housing is a significant contributor to U.S. GDP—accounting for 15–18% through direct residential investment and housing-related consumption (NAHB). Changes in housing activity can influence the broader economy by affecting:
- Consumer spending on home-related goods and services
- Employment in construction, real estate, and related industries
- Overall GDP growth through its role in residential investment
While current lending and equity conditions differ from those seen before the 2008 financial crisis (Federal Reserve), any prolonged housing slowdown could still add pressure to other areas of the economy.
Disclosures: This material is provided for informational and educational purposes only and should not be construed as investment, tax, or legal advice. The views and opinions expressed herein are those of the author as of the date of publication and are subject to change without notice. They do not necessarily reflect the views of Howe & Rusling or its affiliates. Any economic and market forecasts presented are speculative and subject to change. They are based on information believed to be reliable at the time of writing but are not guaranteed for accuracy or completeness. Howe & Rusling makes no representations or warranties as to the accuracy or completeness of the information provided. All performance data, economic statistics, and housing market indicators referenced (including data from third-party sources such as Zillow, Urban Institute, the Federal Reserve, National Association of Home Builders, and others) are for illustrative purposes only. Howe & Rusling has not independently verified such data and does not guarantee its accuracy or completeness. The inclusion of third-party commentary (e.g., Nick Gerli, Thomas Ryan) is for informational purposes only and does not represent an endorsement or recommendation by Howe & Rusling. Any forward-looking statements or estimates—including those related to home affordability, mortgage trends, or regional real estate markets—are inherently uncertain and subject to change due to market conditions or external factors. Investing involves risk, including the potential loss of principal. Past performance is no guarantee of future results. Housing market data and trends are not investment advice and should not be used as the basis for making investment decisions. This communication does not constitute a recommendation to buy or sell any security or adopt any investment strategy. All investments should be considered in the context of an investor’s goals, time horizon, and risk tolerance. Howe & Rusling is an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training.
