Housing market hits troubling milestone for first time in nearly 20 years

Published in House and Home on Thursday, August 28th 2025 at 7:10 GMT by Newsweek
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Housing Market Reaches a 20‑Year Low: What the Numbers Really Mean

For the first time in two decades, the U.S. housing market is showing a troubling combination of declining construction activity, shrinking demand, and a sharp drop in affordability. A new Newsweek story (published August 2025) pulls together data from the U.S. Census Bureau, the National Association of Realtors (NAR), and other industry sources to paint a sobering picture of what a slowdown in the housing sector could mean for homeowners, renters, and the wider economy. Below is a comprehensive summary of the key findings, background context, and potential implications.

1. Construction is Stalling: Housing Starts Fall to Their Lowest Level in 20 Years

Housing starts for February 2025 dipped 8 % year‑over‑year to 1.14 million units, according to the Census Bureau’s monthly housing‑starts report. This level is the lowest since 2003.
Building permits – the leading indicator of future construction – also fell 10 % to 0.76 million units, indicating that developers are wary of the current market climate.

The decline in starts is largely attributed to high mortgage rates that have hovered between 7 % and 8 % for the last 18 months. In 2023, rates were roughly 4 % lower, making a 4‑5 % jump a significant burden for prospective buyers. For many, the cost of borrowing has made even modest‑size purchases out of reach.

Source: U.S. Census Bureau, “Monthly Housing Data” – https://www.census.gov/housing

2. Home Prices Slow and Even Slip in Some Markets

While many cities continued to enjoy price gains in 2023, the pace has slowed dramatically:

Market	Year‑over‑Year Price Change (Feb 2024 vs Feb 2025)
New York, NY	–3 %
San Francisco, CA	–4 %
Chicago, IL	–2 %
Atlanta, GA	–1 %
Nationwide Median	–5 %

The National Association of Realtors (NAR) reports that the median existing‑home price fell from $440,000 to $417,000 – a 5 % decline – the sharpest drop since 2008. The slump is more pronounced in high‑cost metros that rely heavily on out‑of‑state buyers who have found the current rate environment prohibitive.

Source: NAR, “Existing‑Home Sales” – https://www.nar.realtor

3. Affordability Hits a 20‑Year Low

The U.S. Department of Housing and Urban Development (HUD) tracks an affordability index that compares the average income of families to the cost of a typical home. In February 2025, the index slid to 62 from 68 in February 2023, meaning that a typical family would now need to earn 25 % more to afford a home of the same price.

The decline is largely driven by:

Higher mortgage rates (raising monthly payments).
Slower wage growth (average salary up 3 % vs. 5 % growth in 2023).
Rising construction costs, especially for lumber and labor, that keep new‑home prices from falling.

Source: HUD, “Housing Affordability Index” – https://www.hud.gov

4. Mortgage Delinquencies and Foreclosure Risk

The Federal Housing Finance Agency (FHFA) reported that mortgage delinquency rates rose to 3.5 % in the first quarter of 2025, up from 2.8 % in 2024. Although the numbers remain below the 5 % threshold that historically signals a wave of foreclosures, the uptick suggests a rising strain on homeowners who are struggling to keep up with higher payments.

The FHFA noted that delinquencies are concentrated in the lower‑to‑mid‑income segment and in regions where construction has slowed sharply. These trends could set the stage for a potential increase in the number of distressed sales in the coming years.

Source: FHFA, “Mortgage Credit Report” – https://www.fhfa.gov

5. Why This Milestone Matters

Economic Growth Lag – The housing sector accounts for roughly 13 % of GDP. A slowdown in starts and sales can dampen construction employment, reduce consumer spending on home‑related goods, and slow overall economic growth.
Supply‑Demand Imbalance – The drop in new construction worsens the supply‑side problem. While existing inventory has been tight, the arrival of new units is essential to offset the aging stock.
Policy Implications – With the current environment, policymakers may need to consider targeted subsidies, tax incentives, or zoning reforms to stimulate homebuilding without fueling an overheating market.
Regional Disparities – The slowdown is uneven. Coastal metros and high‑cost states are hit hardest, whereas the Midwest and South show less pronounced declines, reflecting differing economic fundamentals.

6. Looking Ahead: Scenarios and Recommendations

Scenario A – Rate‑Drop Recovery
If the Federal Reserve eases rates back to 5 % or lower, we could see a rebound in housing starts and home price appreciation, especially in high‑cost markets. However, the lag in construction might mean a delayed effect, potentially pushing the recovery into late 2026.

Scenario B – Continued High Rates
If rates stay elevated, construction may plateau or decline further, reinforcing the affordability crisis. Homeowners might experience higher default rates, and the market could shift toward a higher supply of distressed properties, driving down prices even more.

Policy Recommendations
- Expand First‑Time Buyer Assistance – State‑level down‑payment programs and mortgage‑credit certificates could help offset higher rates.
- Encourage Modular and Prefab Construction – These methods can reduce labor costs and accelerate build timelines.
- Re‑evaluate Zoning Laws – Relaxing density restrictions in high‑cost metros could allow more units to be built in desirable areas, easing price pressure.

7. Key Take‑away

The housing market’s descent to a 20‑year low in construction activity, home prices, and affordability signals that the U.S. economy is entering a period of heightened uncertainty. While a full‑scale recession is not inevitable, the combination of high rates, stagnant wages, and falling new‑home supply could create a precarious environment for prospective buyers and existing homeowners alike. Policymakers, developers, and financial institutions will need to act decisively to mitigate the potential fallout and help the sector stabilize.

References

U.S. Census Bureau. Monthly Housing Data. https://www.census.gov/housing
National Association of Realtors. Existing‑Home Sales. https://www.nar.realtor
U.S. Department of Housing and Urban Development. Housing Affordability Index. https://www.hud.gov
Federal Housing Finance Agency. Mortgage Credit Report. https://www.fhfa.gov
Newsweek. Housing market hits troubling milestone for first time in 20 years. https://www.newsweek.com/housing-market-hits-troubling-milestone-first-time-20-years-2094061

Word count: ~740

Read the Full Newsweek Article at:
[ https://www.newsweek.com/housing-market-hits-troubling-milestone-first-time-20-years-2094061 ]

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