Housing market supply remains tight nationally 

“Existing homes for sale have reverted to more normalized levels across several key Metropolitan Statistical Areas (MSAs), and new homes have become fairly plentiful,” said Michael Rehaut, head of U.S. Homebuilding and Building Products Research at J.P. Morgan. “New homes for sale are at 481K, the highest level since 2007, and speculative homes for sale are at 385K, the highest since 2008. These metrics are roughly 50%/40% respectively above long-term averages. Supply should be less of a support for the housing market in 2025.” Nationally, single-family existing homes for sale are up roughly 20% year-over-year, but the number remains near record lows, around 20-30% below prior troughs.

A housing shortage is often attributed to supply tightness. In this instance, underbuilding has been evident over the past decade, but a longer-term housing shortage is less clear. Looking back over the past 30 years, new household formations and housing completions net out to nearly zero. Other factors could help account for a shortage:

• It’s estimated that there are 11.2 million undocumented immigrants in the U.S., and that number may be higher. This could be ramping up housing demand more than figures suggest, resulting in a shortage of stock.
• Since rates have backed up and rental economics have declined, builders of multi-family units have put on the brakes. On the whole, building is normalizing, but higher rates will slow down new building activity. 

But another key issue is at play, which is restraining supply more than any potential underbuilding. People are staying put for longer due to high interest rates, so housing stock is not being freed up. “The lack of supply is primarily a lock-in issue,” said John Sim, head of Securitized Products Research at J.P. Morgan. “More than 80% of borrowers are 100 basis points (bps) or more out-of-the-money. These are borrowers who have a significant disincentive to sell their home, and this is creating the dearth in supply.”

With such low levels of supply and demand, how can the housing market keep growing in 2025? “The wealth effect from borrowers with significant home equity and/or equity market growth should maintain positive home price growth, though at a very subdued pace,” Sim said. While income has not kept pace with home price growth, existing borrowers are in good shape. And for those who own equities — particularly renters — there’s likely more money available toward downpayments to effectively buy down the mortgage rate. Despite affordability challenges, this wealth effect helps to explain why home price growth is expected to continue. 

President Trump is yet to unveil specific housing policy proposals, but potential direction can be inferred. Limited housing supply has been a key factor driving significant home price growth over the past few years. Trump has recognized the shortage of affordable housing as a significant challenge for many Americans — to address it, he’s proposed two primary solutions:

1. Streamlining zoning approval processes to shorten construction timelines, though this would need to be addressed at a local level except on federal land.
2. Making federal land available for new housing construction projects.

Other potential solutions, such as multifamily construction in areas zoned for single family homes, look unlikely under a Trump administration. Trump has generally opposed multifamily developments in predominantly single-family neighborhoods. In addition, a major campaign promise was to prevent low-income housing developments in suburban areas.

On the demand side, Trump has been less vocal about solutions. However, he has consistently emphasized the effects of immigration on housing market demand. “By reducing immigration and lessening demand, Trump argues that housing costs can be reduced,” Sim said. “It’s not that simple, though — approximately 30% of construction workers are immigrants, so there could be complex implications. Cutting immigration would mean cutting labor supply in the construction industry, which could end up exacerbating the lack of affordable housing.”

Beyond housing, several of Trump’s proposals could, if implemented, lead to rising inflation, which is likely to result in higher mortgage rates that would further dampen housing demand. In particular, government-sponsored enterprise (GSE) privatization — which includes the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association (Fannie Mae) — is expected to come into focus. If executed hastily, this could widen mortgage-backed security (MBS) spreads and lead to even higher rates for borrowers.

“It’s evident that numerous aspects of Trump's policy will impact the housing market,” Sim said. “For now, though, all we can do is wait.”