Millions of Americans are being priced out of their own neighborhoods — and the numbers keep getting worse. A new Zillow analysis confirms that a median-income household can only afford a home priced at $331,483, roughly half the median listing price in most major U.S. cities. Mortgage rates remain stuck above 6%, home prices have surged up to 80% over the past five years, and first-time buyers are facing the toughest conditions in a generation. Here’s exactly why housing got this expensive — and what could change in 2026.
The Pandemic Set Off a Chain Reaction Nobody Could Stop
The roots of today’s affordability crisis trace directly to 2020–2021. When the Federal Reserve slashed interest rates to near zero, mortgage rates briefly fell below 3% and millions of Americans rushed to buy. Then inflation arrived — the Fed raised rates at the fastest pace in four decades, pushing 30-year fixed mortgage rates above 7% by late 2023, the highest since 2001.
Monthly payments on a median-priced home more than doubled compared to pre-pandemic levels. According to the National Association of Realtors (NAR), the typical monthly mortgage payment rose by over $1,000 compared to 2021.
But the homeowners who locked in 3% rates had zero incentive to sell. Listing their home meant giving up a 3% mortgage and taking on a new one at 6% or higher — costing hundreds more per month. This “lock-in effect” froze inventory and kept prices elevated even as demand cooled.
America Simply Hasn’t Built Enough Homes
High mortgage rates explain part of the problem. But the deeper issue predates the pandemic by decades: the U.S. has chronically underbuilt housing relative to population growth. According to NAR, the country faces a shortfall of approximately 3.8 million units. The reasons are structural:
- Zoning laws restrict dense, affordable housing in favor of single-family homes
- Construction costs have risen sharply due to materials prices, labor shortages, and tariffs on lumber and steel
- NIMBYism blocks new development in high-demand neighborhoods
- Builder risk aversion after the 2008 crash led many companies to permanently scale back
As NAR economists put it: “The only way to really solve the housing affordability challenge is to build our way out of it.”
Who’s Hit Hardest — And Where It’s Worst
Middle-income buyers have taken the biggest hit. According to J.P. Morgan Global Research, middle-income households can currently afford just 21% of homes for sale in the U.S. Before the pandemic, that figure was roughly 50% — a dramatic collapse in purchasing power in just five years.
Geographically, the picture is uneven. The Northeast and Midwest — Hartford, Rochester, Worcester — have inventory levels 30% to 50% below pre-pandemic norms, with prices expected to rise another 3% to 4% in 2026. The South and West — Phoenix, Dallas, Miami — have seen a surge in new construction, with some markets showing inventory 50% above pre-pandemic levels and prices beginning to soften.
For Gen Z and young families, the math rarely works regardless of region. Redfin notes that many young buyers are being forced to move in with parents, take on roommates, or delay having children entirely.
Is There Any Relief Coming in 2026?
There are cautious signs of improvement. Zillow’s latest analysis found that buying power has increased by $30,000 over the past year, driven by modest income growth, flattening home values, and gradually declining mortgage rates — now projected to average 6.3% for all of 2026, down from 6.6% in 2025.
Inventory is also rising. Realtor.com and Bright MLS both project a 10% increase in homes for sale in 2026, which should give buyers slightly more options and negotiating power.
But economists are careful not to oversell the recovery. J.P. Morgan expects home prices to grow at roughly 0% nationally in 2026 — inflation-adjusted relief, but not a crash. Redfin projects it could take five years before the housing market returns to pre-pandemic normalcy, meaning millions of Americans will remain locked out through at least 2030.
Sources: Zillow Research, National Association of Realtors, J.P. Morgan Global Research, Redfin, Realtor.com.
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