What to Expect in the Future Housing Inventory Shortages and Surpluses

13 October 2025

The real estate market is like a pendulum — swinging between shortages and surpluses. We've seen housing booms, crashes, and everything in between. But what does the future hold? Will we face an extended housing shortage, or will we end up with too many homes and not enough buyers?

Let's break it down and see what factors are shaping the housing inventory in the coming years.

Understanding Housing Inventory Trends

Before diving into the future, let’s get on the same page about what housing inventory actually means. In simple terms, inventory refers to the number of homes available for sale in the market. When supply is low compared to demand, we experience a housing shortage. When supply surpasses demand, we have a housing surplus.

Currently, the market has been dealing with a low-inventory crisis, leading to skyrocketing home prices and frustrated buyers. But will this continue forever? Probably not. Housing markets are cyclical, meaning that supply and demand fluctuate over time.

Why Are We Facing Housing Shortages?

Several factors have contributed to the current lack of homes on the market. Let’s take a closer look:

1. Lack of New Construction

Builders haven’t been able to keep up with demand, largely due to:

- High construction costs – Prices for materials, labor, and land have made homebuilding more expensive than ever.
- Zoning and regulations – Many areas have strict zoning laws that limit how much housing can be built.
- Delays and supply chain issues – The pandemic severely impacted the supply of building materials and labor availability, slowing down construction significantly.

2. Rising Mortgage Rates

Higher mortgage rates have caused a phenomenon known as the “lock-in effect.” Many homeowners with low-interest mortgages are hesitant to sell their homes because they don’t want to take on higher monthly payments. This limits the number of homes being listed and adds to the inventory shortage.

3. Investors Scooping Up Homes

Large investment firms and individual investors have been purchasing homes at a rapid rate, further reducing availability for typical homebuyers. Many of these properties are converted into rentals, making it even harder for first-time buyers to find an affordable home.

4. Changing Demographics and Demand

Millennials — the largest generation in the U.S. — are in their prime home-buying years, causing an explosion in demand. However, there simply aren’t enough homes available to meet their needs. On the flip side, baby boomers are aging in place and aren’t selling their homes as frequently as previous generations did.

Will a Housing Surplus Happen?

It's possible, but not in the immediate future. A surplus happens when there are more homes for sale than buyers in the market. While that seems far-fetched today, factors could shift to create an oversupply.

1. Increase in New Construction

If homebuilders ramp up production and overcome zoning and labor challenges, we could eventually see a flood of new homes hit the market. Some cities are already making efforts to reduce barriers to construction, which could lead to a more balanced market in the years ahead.

2. Baby Boomer Sell-Off

At some point, baby boomers will downsize or move to retirement communities, leading to an increase in available homes. If this happens quickly, it could trigger more supply than demand. However, this process will likely be slow and steady rather than a sudden wave of listings.

3. Economic Downturns

A major economic downturn or recession could lead to decreased affordability and lower homebuyer confidence. If people lose jobs or face financial uncertainty, fewer buyers will be in the market, potentially creating a situation where homes sit unsold for extended periods.

4. Cooling of Investor Activity

If interest rates remain high and rental yields decline, investors may slow down their real estate purchasing. This could free up more inventory for everyday buyers. Additionally, short-term rental markets (like Airbnb) are facing stricter regulations in some areas, which could lead to an increase in homes being put back up for sale.

What Should Buyers and Sellers Expect?

Navigating the housing market isn’t easy, but understanding where things are headed can help you make smarter decisions.

For Buyers:

- If you’re looking to buy in a high-demand area, be prepared for competitive bidding wars and potentially high prices.
- Keep an eye on new developments. More housing construction could bring prices down over time.
- Explore mortgage rate options carefully. Locking in a lower rate now could save you thousands in the long run.

For Sellers:

- If the inventory remains tight, you’re in a strong position to sell at a great price.
- However, if more homes hit the market, competition will increase, meaning you may need to price your home more competitively.
- Keep an eye on economic conditions. If a downturn occurs, buyers may be more hesitant, and selling could become more challenging.

Will We Ever See a Truly Balanced Market?

A balanced housing market — where supply meets demand — is the ideal scenario, but it’s tough to achieve in reality. Many moving parts, including economic shifts, government policies, and generational trends, influence the market.

However, as builders continue to work on increasing housing supply and interest rates stabilize, we may eventually move toward a more balanced market in the coming years.

Final Thoughts

Housing inventory shortages and surpluses are a natural part of the real estate cycle. Right now, shortages are the dominant issue, but that won’t last forever. Over time, as new homes are built and market conditions shift, we may see a more balanced or even surplus market.

For both buyers and sellers, staying informed and adaptable is key. The real estate market may be unpredictable, but those who plan ahead will always be in the best position to make smart moves.