5 Reasons Behind the U.S. Housing Price Surge, Leaving Many Struggling to Buy or Rent

For many Americans, the prospect of homeownership is becoming increasingly unattainable. While prices rise, the number of homes on the market has actually decreased, leaving many to wonder if they will ever be able to own a home.

In July 2025, there were about 479,000 home sales, down from 486,000 a year earlier. However, the average price had increased by about 1.2%. With higher prices on fewer homes for sale, many are wondering how housing in the U.S. got so expensive in the first place.

But the answer isn’t simple. Here are some of the primary reasons why homeownership and renting in the U.S. has becoming increasingly expensive.

Low Supply of Housing

At its heart, the housing crisis comes down to a basic economic concept: supply and demand. There aren’t enough homes for sale to meet the number of people looking to buy in certain areas. This mismatch is driving up prices across the country, even as some buyers pull back due to high mortgage rates and overall costs.

“We’re facing a very imbalanced housing market right now with a disproportionate number of sellers and buyers,” said Daryl Fairweather, chief economist at the real estate brokerage Redfin. “Redfin recently found that there are about 500,000 more sellers than buyers, but we’re still inventory-constrained in many parts of the country, which is keeping home prices high.” 

High housing costs aren’t just a problem in big cities anymore. With more people looking to buy and not enough homes for sale, many cities that used to be affordable are now seeing home prices go up quickly.

“Unsurprisingly, home prices remain elevated in historically expensive cities such as Los Angeles, San Francisco, and New York,” explained Fairweather. “However, recent Redfin data shows that prices are growing the fastest in Midwest metros such as Milwaukee, Cleveland, and Detroit. Philadelphia is also experiencing record price growth. This is largely being driven by a lack of supply, which is propping up home prices.” 

Increasing Mortgage Rates

Mortgage rates have also increased since the pandemic. Even though price growth has slowed in some markets, the higher monthly interest payments are pricing out some prospective buyers. These higher rates also discourage current homeowners from selling, since they may be holding onto ultra-low rates that they locked in during the pandemic.

“The mortgage rate lock-in effect has further contributed to the lack of supply, since many folks who bought during the pandemic don’t want to give up their 2% or 3% mortgage rate,” Fairweather told Investopedia. “Lower mortgage rates will help relieve price pressure only somewhat—it’s up to policymakers to dig us out of the affordability crisis.”

Restrictive Zoning and Local Regulations

Another major factor is restrictive zoning laws and regulations that limit new construction. Many cities and towns enforce single-family zoning or limit the density of new developments.

“NIMBY policies are also hindering new home development across many cities with affordability challenges,” Fairweather explained. 

NIMBY, short for “Not In My Backyard,” refers to exclusionary zoning policies that restrict the building of new housing, as existing residents may be concerned about how new housing may impact their own property values and change the character of their neighborhoods.

If these regulations aren’t updated, the housing shortage will likely get worse. That means prices could keep rising, more people would be priced out of their communities, and homelessness and could increase.

“We need to build more homes and implement smart zoning policies that will cut through red tape on building, especially regarding multifamily construction,” Fairweather added. 

Rising Construction and Labor Costs

Even when new housing can be developed, the cost of construction has increased significantly. According to Zillow, the cost of building a new home can range from $137,901 to $523,890, in addition to the $3,000 to $150,000 it may cost for land.

In 2024, construction made up 64.4% of the price of a new home, up from 60.8% only two years earlier. That’s the highest share ever recorded by the National Association of Home Builders. One big reason behind this is higher inflation, which has raised the cost building materials. 

Investor Activity

Investor activity may also be having an impact on the housing market. Large investors and corporate landlords are buying up single-family homes, apartment buildings, and even mobile home parks, driving up prices and rents in the process. In many cases, these properties are turned into short-term rentals or kept vacant as investment assets, removing them from local housing markets.

This speculative activity reduces the number of homes available to renters and buyers, especially in communities already struggling with housing access. As investors focus on profits, the needs of ordinary neighborhoods and communities are often left behind, according to the Institute for Policy Studies, a liberal think tank.

The Bottom Line

As prices rise, many Americans will continue to face challenges in buying or renting homes at affordable prices. Among the factors driving up the cost of housing are restrictive zoning policies, a low supply of housing and high demand for it, and an increasing share of institutional investors purchasing housing stock.