When the Roof Gets Too Expensive: The U.S. Housing Market Then and Now

Real estate has long been seen as one of the safest and most rewarding investments—a tangible asset that not only builds wealth but also fulfils the lifelong dream of homeownership shared by millions. For generations, buying a house has symbolized stability and success. But can the same confidence be placed in the U.S. housing market today? Looking back, the housing bubble of the 1990s was fueled by easy credit, excess supply, rising ownership, and speculative buying, setting the stage for volatility and reform. Fast forward to the present, and the market tells a very different story: record-high prices, limited supply, tighter lending rules, and new demographic pressures. How have different fundamental factors affecting the market changed over the period? Comparing the housing market then and now raises an important question—has real estate in America remained the reliable dream it once was, or has the definition of that dream changed with time?” It was obvious that during the boom phase that there was an excess supply of housing in the market. Housing production rose explosively, especially single-family homes, with the increase in capital inflow into the market. The booming economic prosperity, rise in wages, and government policies and tax benefits that encouraged homeownership all brought the boom in the market. But what about now? How has supply changed over the years? The 2007 Financial crisis acted as a market correction, resetting the elevated price levels of houses. But with such a fall in the price levels of houses, the housing market experienced a sharp pullback from construction companies. With mortgage rates at an all-time low and an increase in raw material costs, affordable homes were not profitable enough to build, leading the USA to another housing crisis. Over the period, though the supply has changed drastically crisis remains. During the housing bubble, there was an excess supply of housing production, and with the help of ARMs (Adjustable-Rate Mortgage) and high credit availability, demand rose as well. But the following burst led to the infamous 2007 financial crisis, pushing millions into debt. And after the correction and decline in housing prices, supply took a hit as raw material prices rose. One can notice how the ripple effect of the 2007 crisis, led by the housing bubble burst, has affected the supply of housing production in the US market over the years. There was extremely strong demand during the housing bubble in US market. With rising wage levels, the strong middle-class demand for houses rose. And leniency in bank loans and the introduction of ARMs were just fuel to the fire. ARMs were introduced during the 1980s as a financial tool, as an alternative to fixed-rate mortgages, in which interest rates were not fixed but rather adjustable. With the starting low interest rate in ARMs, and fixed mortgage rates and inflation so high, ARMs became an attractive alternative. Loans seemed more appealing, and with the government offering tax benefits and promoting homeownership, demand continued to rise on an upward trajectory. But one thing many missed about the ARMs was how risky it was. Though the initial low payments attracted many, the later rise in interest rates in ARMs led to a drastic increase in monthly payments, which many could not keep up with. One of the major driving forces of demand was speculative buying. Though many with the dream of owning a home entered the market, many more entered to make a profit by flipping houses. Now, with huge Capital inflow into the market and rising price levels making the market more tempting, speculative buying took place with the hope that prices would keep on rising, huge returns, and thus creating a snowball effect. After the 2007 crisis, when the market corrected itself and prices fell, this could have meant an increase in demand for housing. But a rise in production costs, especially after the COVID-19 pandemic and tariffs, as mentioned before supply of housing production is far below that of demand, thus surging home values to almost double over the last decade as you can see from the following chart.

Now, as the home values increase, so do the mortgage rates, as it takes an increase in home value into consideration. With high mortgage rates, demand for housing becomes less appealing not just for first-time homeowners but also for existing homeowners. And since existing homeowners are unwilling to move, they are unwilling to sell their house as well, further affecting the supply. In the following chart, you will observe how, during and after the COVID-19 pandemic, there is a sudden spike in mortgage rates from 2.96% to 6.76%. As stated earlier, this sudden spike in mortgage rates could be explained by an increase in production costs due to the pandemic affecting global supply chains, imposition of tariffs, all of which are adding to an increase in home values. 

Variations in market supply and demand exerted a direct and measurable impact on home prices. With such an excess supply of housing, why did housing prices still rise during the bubble period? Though there was excess supply during the bubble, demand was not only able to keep up with it but also overtake it, thus fueling prices. And with the increase in prices, ‘Buy Now’ psychology and speculation also encouraged an increase in purchases, thus further driving demand and prices up. After 2007, when prices corrected itself huge decrease in supply led to a surge in housing prices again.

As you can observe from the above chart, there is a steady increase in housing prices from around 200,000 US Dollars in 2017 to around 360,000 US Dollars in 2025, which is around an 80% spike in housing prices over the last 9 years. One thing to note is how, during the bubble, single-family homes emerged as the centrepiece of new housing construction, leading the surge in production. But after the market correction, making profits from building affordable single-family homes became nearly impossible due to labour shortage, high raw material costs, thus pushing the USA into Housing Affordability Crisis. Over the period, housing market of US have changed significantly. From surge of excess supply during 1990s to lack of affordable housing. Prices have also equally fluctuated from rising during bubble, crashing after the burst to again increasing especially after COVID-19 pandemic. From housing bubble of 1990s to Housing Affordability Crisis in 2020s, crisis is the only constant in the given equation. Whether it be debt and financial crisis after the bubble burst in 2007 or the scarcity of affordable housing in 2024. One should ask oneself, is it just the aftermath of Financial Crisis led by Housing bubble of 1990s or beginning of another Crippling crisis which won't just affect housing but other aspects of the US economy?