The housing market has faced persistent challenges over the past few years. Rising home prices and stubborn mortgage rates have kept many first-time homebuyers on the sidelines, while sellers have postponed listing properties, as both await market improvements.
Fewer new construction projects and the rising price of building materials like lumber, steel, and gypsum, have created an affordable housing shortage that has exacerbated the market’s stagnation.
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Although housing inventory began increasing notably in the spring, homebuyer demand has remained weak, subduing overall home sales this year.
Growing economic uncertainty and sticky mortgage rates have dashed many predictions that 2025 would see a strong housing rebound, despite improvement in certain regions.
During the Zillow Q2 2025 earnings call, CEO Jeremy Waksman noted that the housing market will likely face the same challenges plaguing the market since 2022.
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Zillow CEO flags mortgage rates and lack of affordable housing as cause of market stagnation
The Covid-era housing boom fueled by historically low mortgage rates was soon replaced by market cooling from skyrocketing inflation and mortgage rates in 2022.
The Trump administration's reciprocal tariffs significantly raised the cost of building materials, leading to a slowdown in new construction and housing starts.
Related: Redfin predicts mortgage rate change will give buyers new housing market advantage
The National Association of Homebuilders found that the number of single-family home construction projects dropped 6% between June 2024 and June 2025, while apartment construction projects were down over 18%.
During the company's Q2 earnings call, Zillow CEO Jeremy Wacksman noted that housing construction is lagging far behind demand, which is one of the primary drivers of the sluggish housing market.
“The story on the housing market is it's going to take a while to normalize because the affordability challenge we have is really an availability problem,” Wacksman said. “So mortgage rates easing helps on the margin, but we're still dealing with the fact that we're nearly 5 million homes underbuilt from not building out of new construction inventory coming out of the global financial crisis.”
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The mortgage lock-in effect is also hurting housing inventory and sales, as many sellers are reluctant to list their home and give up a competitive mortgage rate. A staggering 72% of outstanding mortgage debt has interest rates below 5%, nearly two percentage points lower than the current level.
“And so that plus a bunch of sellers being locked into low mortgage rates and not wanting to trade up, creates a supply-demand imbalance. That's why you've seen prices run up so much from the pandemic,” he continued. “And it's why even with prices starting to ease in so many markets, you're still seeing volume low.”
Zillow CEO expects slow and disproportionate housing market rebound
Although housing sales have been tepid this year, there have been considerable improvements in southern and western markets.
Housing inventory is increasing, homes are spending more time on the market, and price reductions shifting those markets to with buyer-friendly conditions. The northeast and midwest, however, remain tight markets with stiff competition, high prices, and limited inventory.
Despite certain markets performing well, overall housing sales have been slow, dampening hope for a strong rebound this year.
“It [the housing market] was flat in Q2, and we don't expect a lot of relief into the latter part of the year. The story on the housing market is it's going to take a while to normalize, right, because the affordability challenge we have is really an availability problem,” Wacksman explained.
“There are many markets where home prices have already rolled over and are down a few percentage points year-on-year and are continuing to go down because there's enough listing inventory out there. But again, we don't expect that to provide overall total transaction value relief anytime soon.”
Housing sales will likely continue to be lukewarm through the end of the year, though advances in certain pockets of the U.S. show promise for 2026.
Related: Warren Buffett's Berkshire Hathaway predicts major housing market shift soon
