The ratio of housing starts to household formation fell below 0.8, a 60-year low. Median rent crossed $2,000 a month. Home prices rose 4.7%. The April 16 housing starts report is the next data point.
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America is adding fewer homes per new household formed than at any point in six decades. The ratio of housing starts to household formation dropped below 0.8 in the latest data, meaning supply trails demand by a wider margin each year.
Zoning restrictions in metros with the strongest job growth block multi-family development. Construction employment has not recovered to pre-2008 levels. The average age of a framer or an electrician now exceeds 45. Tariffs on Canadian lumber and Chinese drywall added roughly $25,000 to the price of a typical single-family home versus 2019, the National Association of Home Builders estimates.
The consequences show up in rent and price data. The national median rent crossed $2,000 a month for the first time in early 2025. Home prices rose 4.7% year-over-year in February while mortgage rates held near 7%. The inventory of existing homes for sale sits at 3.1 months of supply, against the 6-month level economists see as balanced. Existing-home inventory has not breached 4 months of supply since 2019. The shortage keeps upward pressure on prices even as demand weakens at current mortgage rates.
The supply gap has caught the Fed's attention. Chair Jerome Powell cited housing services inflation as a persistent component of core PCE at his March press conference. Shelter costs have slowed less than expected, Powell said.
The S&P Homebuilders Select Industry Index trades at 12.5 times forward earnings, above its 10-year average of 10.8 times. Supply constraints keep pricing power intact. Investors are pricing in sustained margins. D.R. Horton and Lennar shifted production to build-to-rent and multifamily for-sale projects. D.R. Horton pivoted roughly 30% of its community count to build-to-rent communities in 2024. Lennar's multifamily for-sale business grew to 12% of total closings. Both strategies capture higher revenue per square foot and reduce exposure to first-time buyers priced out near 7% mortgage rates.
Relaxing zoning in the top 20 metro areas would unlock the most building capacity per regulatory change, economists at the Urban Institute said. Local opposition remains strong. Bills in California and New York that would override local zoning rules have stalled. The federal government's main lever is grant conditionality through the Community Development Block Grant program. The Biden administration tied that funding to zoning reform in 2023. The Trump administration reversed the policy.
The Census Bureau releases March housing starts April 16. Consensus expects an annualized pace of 1.42 million, roughly flat with February. At that pace, the ratio stays below 0.9.
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