Is the Housing Affordability Crisis Really a Supply Shortage? New Research Points to Demand and Income

What the new research claims (and why it challenges the shortage narrative)

A new Economic Letter from the Federal Reserve Bank of San Francisco argues that the U.S. affordability problem isn’t explained well by a simple “not enough homes” story. Looking across metro areas, the authors find that **average income growth is strongly related to house price growth**, while changes in housing supply are **largely unrelated to average income growth**. Instead, **housing supply growth tends to track population growth**, and in most metro areas housing units grew faster than population even in expensive places. [frbsf.org]

The mechanism is important: once household sizes are already relatively small (as they are in the U.S. on average), higher incomes may translate less into demand for *more units* and more into demand for *better housing*—renovations, more desirable neighborhoods, or higher-amenity locations. That kind of demand pressure can push prices up without producing a commensurate jump in unit construction. [frbsf.org]

Investopedia’s write-up of the research emphasizes the same point: the analysis suggests that rising incomes—particularly concentrated at the top—can keep prices high even when the country is building. [investopedia.com]

What current market data say: cooling isn’t the same as affordable

Recent weekly market data are consistent with a “more balanced” near-term market, even if affordability remains strained. Realtor.com’s Weekly Housing Trends Report for the week ending January 31 shows:

• **Active inventory up 8.9% year over year**
• **Median list price down 2.4% year over year** (its largest weekly YoY drop since the series began in 2018)
• Homes spending **six more days on market** than a year earlier
• A 30-year fixed mortgage average of **6.11%** for the week ending February 5 (Freddie Mac) [realtor.com]

Mortgage rates are a key reason “cooling” doesn’t immediately equal “affordable.” Freddie Mac’s PMMS shows the **30-year fixed-rate mortgage averaged 6.11% as of February 5, 2026** (vs 6.89% a year earlier), and the **15-year averaged 5.50%**. [freddiemac.com]

Other indicators point in a similar direction. CBS News, citing Zillow, reports home prices have declined each month since July, with January marking the sixth straight monthly decline in that series; Zillow’s index showed a **0.4% month-over-month dip from December to January**, with typical U.S. home value around **$358,968** and values about **0.2% higher year over year**. It also noted **more than 1.2 million homes listed in January**, up **6%** year over year. [cbsnews.com]

So what actually moves affordability?

Affordability is ultimately a payment problem: prices, rates, and household income all matter at once. The SF Fed research suggests that in many metros, the pressure point may be **who is driving demand and what kind of housing they want**, not only how many units are added. [frbsf.org]

That doesn’t mean supply is irrelevant. The same research finds supply growth is closely linked to population growth—so in fast-growing metros, adding units is still central to preventing shortages. But in markets where demand is dominated by higher-income households competing for specific neighborhoods or housing quality, new construction alone may not deliver broad affordability unless the added supply meaningfully expands the options that middle-income households can actually buy or rent. [frbsf.org]

Practical implications for buyers, sellers, and investors

**Buyers:** In a market where inventory is improving and time on market is lengthening, the advantage is optionality—more homes to compare and more room for inspection and repair negotiations. But if your local market is driven by high-income bidding for amenities, don’t assume a few months of price softness will reset values dramatically. [realtor.com]

**Sellers:** “Headline” prices may be sticky, but buyers’ willingness to pay can shift quickly when listings accumulate. Watch comparable list-to-sale dynamics and be prepared for concessions in a more balanced market. [realtor.com]

**Investors:** Underwrite conservatively. If the demand story is about quality and location, renovation can work—but only if you can price to the local income profile. If rates stay near 6%, cap-rate math and refinance assumptions get tighter, so stress-test debt service and exit pricing. [freddiemac.com]

**Bottom line:** The shortage narrative is incomplete. Local affordability can be shaped as much by income-driven, amenity-focused demand as by unit counts—especially when mortgage rates remain elevated relative to the ultra-low period of 2020–2021. [frbsf.org][freddiemac.com]