The current housing market is no joke, it seems, in just about every western city you can think of. An interesting case is the USA, where a variety of factors have come together in the last years to completely change the real estate landscape. Whereas renting a home was traditionally seen as the less favourable option in the long run, this situation is now shifting.

Just some years ago, the ability of putting together the money necessary for a down payment on a mortgage meant that buyers were able to then enjoy lower monthly instalments than if they were renting, with the added benefit of owning their homes. Today, however, the reality is the total opposite. In the US’s biggest cities, rent prices have been becoming increasingly more attractive every month since 2020, in comparison to homeownership costs.

A report from Realtor.com, published in June 2025, found that in that month, median rent had declined year-on-year in all apartment categories, from studios to 2-bed homes. In 49 of the 50 biggest American metropolises, renting was more affordable than buying by an average of $908 a month, assuming a 9% down payment, using the 30-year fixed mortgage rate during the month, and including HOA fees, taxes, and homeowners insurance.

There are a variety of reasons which explain this phenomenon. One of them is the lack of new construction, with housing starts decreasing by 9.8% in May, to an annualised rate of 1.3 million. Some of the underlying drivers of this trend are the high material costs associated with tariffs and the lack of favourable government policies, in addition to high interest rates. In 2023, household formation was higher than new construction, with a difference of 4.7 million homes. In this climate, even if demand is decreasing, as Americans turn to renting, the shortage of new homes blocks the possibility of prices going down, while driving inventories to their highest since 2009.

And in looking at this problem of (the lack of) new construction, one finds there an example of how this housing market situation gets retroactively worse as time passes. As homes are not selling, inventories are at record highs, and because high interest rates have also been discouraging enterprises from building new homes, prices have been driven up even more. Another ingredient to the vicious cycle is owners’ sentiment. As they see the price of their homes go down, owners might decide to start saving more and spending less, fearing that their real estate wealth loses its value. This is hurting the key driver of US growth that is household consumption, therefore increasing the threat of a recession.

And this fear of an economic downturn also plays a big role in the housing market. Predictability is low in the current climate, but despite of that, some housing market experts are not optimistic about home sales going forward. Others simply cannot make reasonable predictions or have been changing them in the last months. Still another group thinks that prices will continue to increase, but at a lower rate, some even pointing to a figure close to zero. While this is good for buyers, the ever-present uncertainty also applies to them, in the form of income volatility and high borrowing costs.

The bigger problem, however, is not even accessing a home, it is paying for it month after month. According to Harvard’s Joint Center for Housing Studies, the fact that home sales levels are at their lowest point in 30 years is in part due to two significant factors. One is rising property taxes, which increased an average of 12% between 2021 and 2023. The other is historically high insurance premiums, which went up a striking 57% from before COVID to 2024. This combination drove the median existing single-family home price to (yet another record high) $412,500 last year, five times the median household income, and well above the price-to-income ratio of 3 which would be considered affordable.

The insurance situation is one of the most worrying. The jump in premiums has been mainly driven by the increasing frequency and intensity of climate-related disasters, so the increases have been bigger in areas with the most danger of natural accidents.

This relates to the ability which younger buyers have to access the housing market. While property prices are lower in midwestern and southern cities, it is also there where extreme weather events are more likely to occur, increasing insurance premiums. Gen Z buyers, attracted by the lower prices, represent one in five new mortgage applicants in midwestern cities like Des Moines, Omaha, Youngstown, and Dayton, whereas they account for 13% of all homebuyers. They are able to access housing, but it is not so clear that they can afford it, even in these places.

Going forward, no one can really say what will happen to America’s buyers and homeowners. In terms of demographics, we are also witnessing records. First-time buyers represented in 2024 a total 24%, a historic low (and down from 32% in 2023), while the average age increased to 38 years (up from 35 in 2023). Furthermore, a record 17% of buyers purchased a multigenerational home, to save costs or take care of aging parents, between other reasons.

All in all, this creates a situation where younger people, who are less prone to having children anyway, get more used to renting than owning, even as they get older. What this means for the American economy and society as a whole is another story, surely longer and more complicated. What is for sure is that it is a decisive time for American families, in a country with deeply rooted values of private property, and whose Founding Fathers saw land ownership as a prerequisite for the right to vote.

Reference list:

     Gittelsohn J. (2025, August 13). Americans Are Getting Priced Out of Homeownership at Record Rates. Bloomberg. https://www.bloomberg.com/news/features/2025-08-13/americans-are-getting-priced-out-of-homeownership-at-record-rates

    Hale D. & Xu J. (2025, July 17). June 2025 Rental Report: Renting Saves Over $900 a Month than Buying a Starter Home. Realtor.com. https://www.realtor.com/research/june-2025-rent/

     Joint Center for Housing Studies of Harvard University (2025, June 24). New Report Highlights Unease in the Housing Market Amid a Worsening Affordability Crisis. JCFHS. https://www.jchs.harvard.edu/press-releases/new-report-highlights-unease-housing-market-amid-worsening-affordability-crisis

     Gopal P., Marte J. & Sasso M. (2025, April 16 Top Forecasters Warn Housing Market’s Days of Big Gains Are Over For Now. Bloomberg. https://www.bloomberg.com/news/features/2025-04-16/us-home-prices-are-set-for-an-even-weaker-year-as-tariffs-boost-uncertainty

     Bloomberg (2025, June 19) New US home construction falls to five-year low. Business Times. https://www.businesstimes.com.sg/property/new-us-home-construction-falls-five-year-low

     National Association of Realtors (2024, November 4) First-Time Home Buyers Shrink to Historic Low of 24% as Buyer Age Hits Record High. NAR. https://www.nar.realtor/newsroom/first-time-home-buyers-shrink-to-historic-low-of-24-as-buyer-age-hits-record-high

     Cotality (2025, May 19) Gen Z’s future may be costly despite cheap homes. Cotality. https://www.cotality.com/insights/articles/gen-z-migration-affordability#:~:text=The%20insurance%20gap%20is%20widening,in%20the%20past%20fifteen%20years