Key takeaways
- Home prices are high largely due to a long-term housing shortage—an issue stemming from decades of underbuilding.
- Strict zoning laws and investor activity are also limiting supply and shaping the market.
- A supply-driven feedback loop is keeping prices elevated as buyers and sellers stay on the sidelines.
- Affordability is improving slowly, but homebuilding and supply need to increase for the market to return to life.
It’s not a stretch to say these are unprecedented times for the housing market. Home prices have surged 30% over the past five years, hitting a record $446,000 in 2025, while elevated mortgage rates and a shaky economy continue to complicate the picture.
The impact shows up in monthly costs. Mortgage rates have pushed payments higher, while rising insurance, inflation, and property taxes are adding even more pressure.
These trends have created a slow and expensive housing market that strongly favors buyers. Homes are taking longer to sell (66 days in February 2026, up from 55 in 2025), and many Americans can’t afford a starter home. More people are instead choosing to rent, which is now more affordable than buying in every major city.
So, why are houses so expensive? In this Redfin article, we break down three factors behind today’s record prices, where costs may be headed, and how buyers and sellers can navigate the market.
From Redfin’s Chief Economist
“It’s normal for house prices to rise slowly over time, but a decades-long inventory shortage, economic uncertainty, and whiplash from the pandemic has made the current housing market especially slow and expensive. It will take a concerted political and industry-wide effort to close the supply gap, bring down costs to a ‘normal’ level, and make homeownership a viable and appealing option for more Americans.” – Daryl Fairweather, Redfin Chief Economist
1. America has a severe housing shortage
The primary reason houses are so expensive today is because there simply aren’t enough of them. Too many buyers are competing for too few properties, creating a supply-and-demand imbalance. The U.S. has been underbuilding homes since the Great Recession, when prices were in freefall and foreclosures were spiking, and hasn’t recovered.
Then came the pandemic-era homebuying frenzy, which exacerbated the problem by draining an already limited supply to record-low levels. Now, even though there are far more sellers than buyers in the market, both holding off due to high costs and very slow sales.
“The U.S. has been stuck in an unusual cycle since the pandemic,” said Chen Zhao, Head of Economics Research at Redfin. “Limited supply has pushed up housing costs, which has kept more buyers and sellers out of the market—putting a lid on new inventory and ultimately nudging costs up further. The market is very slowly correcting itself, but until homebuilding increases or the country falls into a recession, this pattern is unlikely to break.”
Today’s housing shortage estimates range from 1.5 million to 5.5 million. The shortage affects homes across all price points, but starter homes have been hit especially hard—largely because builders are choosing to build bigger homes and homeowners are staying put for longer.
2. Zoning laws have limited new construction
In many regions, WWII-era single-family zoning laws have made it difficult for developers to build housing at scale. For example, in California, which has one of the largest housing shortages, 96% of available land is zoned exclusively for single-family homes. These constraints reduce the ability to construct denser housing and contribute to higher home prices. A rise in construction costs has also played a role in deincentivizing homebuilding.
“Homebuilding has slowly increased over the past decade, but not meaningfully enough to close the supply gap,” continued Fairweather. “Updating zoning laws across the nation to align with today’s needs—for example, allowing for more multifamily construction—could boost housing supply and bring costs down, since rental housing reduces pressure on the for-sale market. Many local governments have already updated their zoning laws, which is one reason why multifamily construction has remained relatively strong and rents haven’t skyrocketed.”
President Trump has taken multiple actions to incentivize construction, including reducing environmental regulations and promoting building on federal land. But he does not favor broadly updating single-family zoning, citing his commitment to preserving the American suburb. His anti-immigration stance will also likely push up building costs and raise home prices.
3. Investors own a larger share of homes
Housing investors—any institution or business that purchases residential real estate—have taken a growing share of the overall market. The more homes investors own, the fewer available for everyday buyers.
The trend became clearest during the pandemic: As everyone else was rushing to buy homes, investors purchased a record $64 billion worth, or nearly 100,000 properties. This helped bring their total market share to 21% by 2023, meaning one in five homes were bought by an investor. Their share has since dropped as costs have skyrocketed but remains far above pre-pandemic levels.
However, housing investors present an interesting problem, since most of the properties they purchase end up as rentals or as part of build-to-rent communities.
President Trump has made it a priority to ban large investors from purchasing single-family homes in an effort to get more existing for-sale supply into people’s hands. “While this may sound positive on the surface, it doesn’t address the root of the problem,” cautioned Zhao. “Limiting investor purchases would actually reduce rental supply and, in turn, put additional pressure on the for-sale market. The core issue remains the same: The U.S. needs more homes at prices people can afford, and building more housing will have the most impact.”
Will house prices fall in 2026?
House prices likely won’t fall in 2026. The more likely scenario is that they will continue to grow more slowly. Prices have increased by about 1% year over year each month since mid-2025—slower than wages and one reason why affordability has actually improved over the last several months.
At the same time, though, a volatile economy continues to weigh on the market. Tariffs are driving up construction costs, immigration crackdowns could shrink the building workforce, and the Iran war and resulting oil price shock could lead to inflation, recession, or both. As a result, everyone is wary, making it more important than ever to prepare before entering the housing market.
Read: When Will House Prices Go Down?
How to buy and sell in an expensive housing market
House prices are high and few homes are selling, but supply is stacking up, giving buyers the edge. However, trends vary by region: In areas of the Midwest and Northeast, there are more buyers than sellers, helping homes sell quickly and pushing prices up; in many cities in the South, prices are falling as sellers outnumber buyers. Talk with a local real estate agent to learn how your area is faring.
Here are some tips for navigating today’s slow and expensive housing market.
For buyers:
- Be patient: Inventory is slowly rising, but competition for well-priced homes is still high in some areas. Get pre-approved and move quickly when you find the right home.
- Negotiate aggressively: With more inventory and a shortage of sellers, buyers often have more room to negotiate on price, repairs, or closing costs.
- Budget carefully: Mortgage rates remain elevated, so know your limits. Don’t stretch just because inventory is up—instead, focus on long-term affordability and budgeting.
- Consider concessions: More sellers are offering concessions to close deals, like rate buydowns, paying agent commissions, and covering closing costs. Your agent can help you decide what’s worth offering.
- Hire a great agent: A real estate agent will help you find, tour, negotiate, and close on homes in your budget. Depending on the competitiveness of the market, they may be especially critical to winning a home.
>> Read: Is Now a Good Time to Buy a House?
For sellers:
- Price realistically: Overpricing can cause your listing to sit for longer than expected. Homes priced right from the start tend to sell faster and for more, even in slower markets. A previous Redfin report found that the typical seller wants $39,000 more than the typical buyer is willing to pay.
- Consider phased marketing: If allowed in your area, listing your home to a smaller number of people prior to going live on the MLS can help you gauge interest and test out different pricing options. Redfin and Compass have partnered to display Compass “Private Exclusive” and “Coming Soon” listings, offering sellers flexibility and buyers access to more homes.
- Offer incentives: Consider offering to help with closing costs, rate buydowns, or flexible move-in dates to stand out in today’s strong buyer’s market. Flexibility could be the key to closing quickly.
- Highlight the best features: Buyers are cautious and often prefer turnkey homes, so small repairs, fresh paint, and staging can make a big difference.
- Work with a great agent: Today’s market is nuanced, so having a top-tier agent with a mastery of local trends is more important than ever.
>> Read: Should I Sell My House Now?
Final thoughts: Prices are high because there aren’t enough homes, but improvement could be ahead
Houses are expensive because there aren’t enough to go around. High costs, restrictive zoning policies, and an increase in investor activity have constrained homebuilding and shifted some homes that would otherwise be for sale into rentals, reducing the supply to historic lows.
Some proposed housing laws, including the ROAD to Housing Act may help remove some barriers keeping homebuilders and house hunters out of the market. But until homebuilding meaningfully increases or economic conditions shift, many buyers and sellers are likely to remain on the sidelines, prolonging today’s affordability challenges.