A commentary has been making the rounds in our internal conversations: to restore homebuyer affordability to pre-pandemic levels, you’re basically choosing between three unlikely outcomes: rates collapsing, wages skyrocketing, or home prices getting cut by a third.
The takeaway, according to the economist who created it? “Build homes!”
We see a different picture, one where affordability headlines often obscure what’s actually driving prices, construction, and investment decisions.
“His ‘build homes’ comment emphasizes that more supply would help,” says Steve Nolander, our Senior Director of Commercial Lending.
The question isn’t whether affordability is strained; it is. The question is whether the framing matches reality.
Supply, Not Speculation
When housing prices surged in 2021 and 2022, observers predicted a correction. Rates spiked. Buyers pulled back. The conditions that typically precede price declines were present.
Yet prices continued to climb, just at a slower pace.
The reason is structural: there aren’t enough homes to meet demand, and that shortage isn’t going away.
“This is a supply issue, not a demand issue,” says Ian Colville, our CEO and Managing Partner. The distinction matters. Demand-driven price increases can reverse when sentiment shifts. Supply-driven markets behave differently: prices stay firm because the underlying constraint remains.
The U.S. housing deficit now sits at 4.7 million units, according to Zillow, an all-time high, built up over nearly two decades of underbuilding. Even with construction activity near post-2007 peaks, new supply hasn’t kept pace with household formation.
Meanwhile, 69% of outstanding mortgages carry rates at 5% or lower. Homeowners don’t want to trade a cheap mortgage for today’s rates, so resale inventory stays limited.
The Construction Reality
If the solution is building more homes, the follow-up question is obvious: why aren’t we?
“How can home prices fall due to a strong push to build when new home construction costs are where they’re at?” says Matt Forster, our Chief Operating Officer. “And it’s only getting worse.”
Material costs are up 41% since the pandemic. Tariffs have added an estimated $10,900 to the cost of each new home. The construction industry needs to attract roughly 349,000 net new workers in 2026 just to meet demand, and immigrants represent about 30% of the construction workforce, so labor policy becomes housing policy.
Builders aren’t holding back because they don’t see demand. They’re working in an environment where the economics of entry-level construction don’t pencil.
The same forces that make housing expensive also make a price drops unlikely.
Resetting Expectations
Among our experts who watch housing markets closely, there’s growing recognition that the pre-pandemic baseline may not be the right reference point.
“We’re not going back to pre-COVID fundamentals,” says Eric Bialke, our Senior Director of Real Estate Joint Ventures. “Or at least anytime soon.”
The 2015-2019 period featured historically low rates, subdued construction costs, and demographics that hadn’t yet collided with supply constraints. Those conditions don’t describe today’s market, and they’re unlikely to return soon.
Affordability will improve at the margins as incomes grow and rates moderate. But the return to a market where median earners comfortably afford median homes may require patience measured in decades, not quarters.
The Question We’re Starting to Ask
Most housing debates obsess over which variable moves first—rates, wages, or prices.
The more honest question is: what if none of them move enough?
We are in the midst of a structural shift: a world where a large share of households rent longer, buy later, and build wealth differently.
For investors, the shortage can function like downside support.
For families, it can feel like a door closing mid-sentence.
Same numbers. Different side of the door.
